Brokers have spoken out about problems encountered when leaving networks, with many saying current network business norms are restrictive and make it difficult to quit.
Most criticism is levelled at the period for which some networks freeze brokers’ income pipelines when they give notice to leave (see box below).
Mortgage Strategy has been contacted about the issue by several current and former network brokers, unprompted, although most spoke anonymously to avoid souring relationships. Brokers say a freeze of their income for several months is unnecessarily long, but networks claim there are sound compliance reasons for doing so.
Once you’re in, getting out of a network is a very hard task. I think that’s often why people stay with networks
Here, Mortgage Strategy examines both sides of an often contentious issue.
One network broker says he wants to leave to become directly authorised but his network’s three-month pipeline freeze is stopping him.
He says: “As soon as you give notice, they freeze your pipeline immediately for three months. I think that is excessive; the final month should be the most they look to freeze.
“That final month is when the exit process is finalised. What are they going to do in the first two months? Nothing, except sit on your money. It’s weighted in their favour.
“Once you’re in, getting out of a network is a very hard task, and I think that’s often why people stay with networks.”
Another broker says the length of the income freeze imposed by many networks “turns the taps off”, and few brokers have enough savings to tide themselves over until they can start trading again.
One 77 Mortgages managing director Alastair McKee says his former network, Tenet, freezes pipelines until the liability for life insurance sales has been transferred to the broker, and the process for that can also take several months.
He says: “In theory you may get it in a month, if you’re organised. But it may take longer to get to that point. So I’d say on average it would be a three-month freeze.”
Networks gave a robust response to the criticism, however, saying the process could not be rushed — although there was significant variation in the length of their respective pipeline freezes.
Mortgage Strategy contacted the top 10 networks by size, although not all responded.
Openwork managing director John Cupis (left) says the network requires one month’s notice to leave and then freezes broker pipelines for around six months. He says this period is needed to manage risks from bad advice, and financial risks from protection clawback.
He adds: “The freeze period enables the network to understand fully the extent of those liabilities and the arrangement the firm wishes to make to transfer those risks elsewhere, and over what timescale.”
TenetLime managing director Gemma Harle says the network freezes pipelines for between one and six months, again depending on how long it takes brokers to novate life insurance liability and comply with other exit terms.
She says: “Networks retain the liability for any complaints or clawback, and the ongoing advice liability; therefore novation and return of customer files is a perfectly reasonable request.
“It is worth highlighting that it is in both our, and the respective firm’s, best interests to get matters concluded as expediently and amicably as possible.”
The freeze period enables the network to understand fully the extent of those liabilities
A Sesame spokesman says the firm freezes broker payments until any liabilities have been paid off, and it asks for all client files to be handed over.
First Complete and Pink business operations director Toni Smith says: “Pipeline, as well as ongoing business, should be managed safely and appropriately. When a broker leaves a network it’s paramount that there is a carefully orchestrated process to ensure minimal disruption.”
First Complete, Pink and Stonebridge also cite liability transfer as the reason the process takes so long. Stonebridge managing director Richard Adams says this takes his firm from six to eight weeks.
HL Partnership development director Martin Sims says the network endeavours to novate liabilities away within three months, and will freeze pipelines for that long.
Adams (right) says: “In business you need to research properly and read any contract in its entirety before signing. We purposefully keep our contracts short to make this less onerous.”
Cupis says: “Advisers and firms cannot join a network without signing a contract so that matters are made clear up front before joining.”
London Money director Martin Stewart thinks a failure to read contracts properly is an Achilles heel for many brokers.
He says: “I’m amazed at how few ARs do read the contracts.”
But he adds that many AR brokers think networks, in their initial sales pitch, overplay the benefits of joining and then do not explain the reality of leaving.
He says: “They throw petals down the path to get you to join and then, when you’re out the back door, it’s landmines all the way to the gate.”
All networks that responded to Mortgage Strategy said their sales pitches were realistic. Intrinsic, Online Partnership and Personal Touch had not responded by the time of publication.
THE ISSUE WITH FREEZING PIPELINES
Most ARs have commission income
redirected from lenders through their network, which takes a cut of the money before it reaches the broker.
When a broker gives notice to leave, this income is frozen while the network handles the separation process.
However, AR brokers say this process takes around three months on average, which is too long to operate with no income. As such, some feel locked in to networks and unable to leave.