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How networks and consolidators compare
This time last year all the talk was about how networks were destined to become the next big thing in the broking industry. With the exception of the few well-established operators, they fell flat and left a lot of people dusting off their wallets.
A year on, the talk is all about the industry consolidators, which appear to be gorging themselves on brokers large and small, with well-publicised ‘war chests’. Their business models are obviously very different but will consolidators fare any better than the networks?
Though there are obvious distinctions, there is one key similarity between the two – brokers have to volunteer to join. Those networks that failed, did so because they could not convince brokers to hand over their independence in return for fairly nebulous benefits, which, in many cases, were built on scaremongering about the Financial Services Authority.
Consolidators have to convince brokers to adopt their model, which is much more demanding than that of the networks. Handing over your shares (no matter how high the consideration) is a much greater wrench than hanging over some aspects of operational control.
Much has been said about the demographic effect of proprietors who are approaching retirement and want to sell up. While that may be true, there are only a finite number in this age group, many of whom are fiercely independent and take a passionate view as to who takes over the labour of love to which they have devoted their working careers. Some feel that the success of their companies has only been possible because of their independence and that selling to a consolidator is akin to selling your soul.
Most principals with strong profitable businesses are quite capable of organising a successful handover internally, to give them a steady income in their retirement. Will that leave consolidators with the dead beat businesses that have milked the hard market without investing in themselves? With the soft market gathering pace, will that leave them paying over the odds for a lot of lame ducks? What about staff turnover and output, which usually plummet in such circumstances? Only time will tell.
Andrew Holman,
Chief Executive,
Post Magazine 30th June 2005
