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Only the fittest networks will survive

When regulation came into force in 2004 there were over 80 networks. Only a third survive and this number will fall again as they are forced to expand, consolidate or die, says Richard Coulson

Figures on the Financial Services Authority’s website prove that the number of appointed representative firms joining networks is rising.

Nevertheless, some networks have folded and more are seeking to merge as economic pressures mount. But rather than spelling the end of the industry, growing competitive pressure ensures that the strongest and best managed networks will survive.

A common theme among the networks that have collapsed is that their business model couldn’t cope with the additional burdens of regulation – neither its costs nor the associated psychological pressures.

Many failed to prepare adequately for the introduction of regulation while others folded because they entered the market with little or no experience of being a distributor in a regulated environment and failed to grasp the technological and support capabilities required.

Before mortgage regulation was introduced in 2004, the market had become complacent. But as its costs started to bite, networks were forced to reassess whether their models were profitable. Back then there were more than 80 networks. Nearly three years on, fewer than one-third of them have survived and forecasts suggest this number will at least halve. The remainder will be forced to merge, acquire new businesses or fold.

This climate of consolidation has come about through lenders’ scramble for the most effective distribution channels, as well as economic factors such as the booming housing market and increasing sales and values, which have contributed to a smaller number of players dominating the industry.

Realistically, only networks with 200 or more AR members can generate the income and profitability needed to survive. Yet today, there are networks operating that cannot even boast 200 sellers.

But consolidation doesn’t stop at mortgages. The market pressures forcing networks to consolidate are hitting associated businesses such as life and insurance firms too. They will also want to reduce costs, benefit from economies of scale and become more technically literate.

But overall, fewer networks will mean fewer firms and operating systems to deal with, while lower acquisition costs mean that economies of scale can be reinvested into improv- ed technology, slicker systems and better products to benefit the public.

This will also lead to better support for brokers in terms of procedures for monitoring, training and compliance, which will relieve their administrative burden while exposing them to less risk.

To stay ahead of the game, networks will have to invest big money in technology and training. Larger networks will only secure their futures by promoting greater professionalism and investing in their people.

And to prosper in this competitive environment, they will need to provide better technology and back-up support than brokers can secure independently.


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