SENSE_NETWORK_LIMITED - Accounts

The directors present the strategic report for the year ended 31 December 2022.

2022 was the year in which the ASHL group completed its governance changes following the acquisition of Sense in 2020. Despite the external factors experienced the business demonstrated its resilience and continued to grow from strength to strength.

Investment in systems and people throughout the year across the group ensured that the process of consolidation had a beneficial impact on all group entities.

Trading conditions continued to be challenging for directly authorised firms, in particular with professional indemnity insurance remaining expensive and difficult to source. Also the breadth of the Financial Conduct Authority’s rules require expertise beyond many small firms which continues to provide opportunities for well run networks.

The future for Sense looks positive, as the business becomes part of a larger and growing group.

The risks to the business broadly fall into the following categories: competition, consumer/regulatory risk and financial/economic risk.

The risk from competition includes:

• Aggressive pricing or incentives from competitor networks or consolidators may affect the ability of the business to attract and retain the volume of AR firms needed to achieve our plans.

• Consolidators, funded by product providers and private equity investors, acquire additional firms leading to increased demand from competitors for staff.

• More providers seek to create vertically integrated businesses and, in so doing, target our AR firms for acquisition.

To mitigate these risks, the Board closely monitors developments in the marketplace and meets regularly to review any issues arising and whether any response is required. The purpose of these reviews is to ensure that the network proposition remains attractive to existing and potential AR firms and to maintain attractive remuneration structures for staff.

Consumer/regulatory risks include:

• The potential for poor advice to be provided to consumers which results in complaints, compensation payments and reputational damage.

• The increasing propensity for UK consumers to make claims for redress, often initiated or encouraged by claims management firms and/or law firms.

• The risk that the business does not operate in accordance with FCA rules and incurs regulatory sanctions.

• The availability and cost of Professional Indemnity Insurance (PII) required by FCA rules.

• The risk that PII cover is insufficient in the event of an increased incidence of successful claims.

• The reducing number of small financial adviser firms.

Sense has robust compliance procedures and oversight arrangements which it believes are satisfactory to comply with FCA’s rules

Sense and its individual AR firms hold FCA compliant PII policies and the Board reviews the level of insurance cover held each year including, in 2020, successfully securing commercially competitive terms for PII for historic DB pension transfer business on behalf of our members.

Financial/economic risks comprise:

• The impact of changes in the general economic environment which might adversely impact the demand for financial advice.

• The impact of stock market downturns on the level of recurring income generated across the network.

• The risk that the business may have insufficient working capital to meet regulatory capital adequacy requirements.

• The risk that AR firms may go out of business, consequently affecting revenues generated by the network.

• Credit risks relating to commission paid on an indemnity basis on insurance related transactions which may be “clawed back” by product providers in the event that a policy is cancelled.

To mitigate these risks, the Board meets regularly to assess the potential for economic and environmental developments to impact demand for financial advice and to react accordingly. By design, the business derives the majority of its revenue from the delivery of ongoing services to customers (fees from regular financial reviews) rather than transactional income relating to one off product sales. The Board’s view is that this leaves the business less vulnerable to general economic changes by avoiding an over reliance on demand for new products. Any reduction in recurring revenue resulting from significant and sustained stock market downturns has the potential to impact profitability. Senior management review market developments and management information regularly to identify issues in a timely manner and take appropriate mitigating action.

The financial resources of the business are reviewed regularly against short, and long term, financial forecasts and the FCA capital adequacy rules, and these inform financial decisions. The financial resources, solvency and viability of AR firms are monitored via periodic financial checks and regular audits undertaken by the compliance team. Credit risks related to potential commission clawbacks are mitigated by the contractual terms each AR has with the Network, under which the Network can recover any clawbacks of indemnity commission. This is underpinned by personal guarantees from the principals of each AR firm and survives post-termination of an AR Agreement.

There has been strong growth in Sense’s financial performance. Revenues of £50,167,238 were achieved in the year, which represents a year-on-year growth of 5.3%.

Profit before taxation was £2,036,334. This represents an increase of 25.8% from 2021, a remarkable achievement in the economic climate. After taxation, profit amounted to £2,043,513.

The balance sheet was further strengthened over the year with net assets for Sense Network Limited at £6,143,950 in comparison to £4,100,437 in 2021, significantly in excess of what is required under the capital adequacy rules enforced by the FCA.

The business had no bank debt during the period.

On behalf of the board

The directors present their annual report and financial statements for the year ended 31 December 2022.

The principal activity of the company continued to be that of a financial services network.

The results for the year are set out on page 8.

Ordinary dividends were paid amounting to £nil (2021: £nil). The directors have not recommended any further dividends.

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

The auditor, Azets Audit Services, is deemed to be reappointed under section 487(2) of the Companies Act 2006.

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

•     select suitable accounting policies and then apply them consistently;

•     make judgements and accounting estimates that are reasonable and prudent;

•     state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

•     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company’s auditor is aware of that information.

We have audited the financial statements of Sense Network Limited (the 'company') for the year ended 31 December 2022 which comprise the statement of income and retained earnings, the balance sheet and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland (United Kingdom Generally Accepted Accounting Practice).

In our opinion the financial statements:

•     give a true and fair view of the state of the company's affairs as at 31 December 2022 and of its profit for the year then ended;

•     have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•     have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Other information

The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of our audit:

• the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

•     adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

•     the financial statements are not in agreement with the accounting records and returns; or

•     certain disclosures of remuneration specified by law are not made; or

•     we have not received all the information and explanations we require for our audit.

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.

Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above and on the Financial Reporting Council’s website, to detect material misstatements in respect of irregularities, including fraud.

We obtain and update our understanding of the entity, its activities, its control environment, and likely future developments, including in relation to the legal and regulatory framework applicable and how the entity is complying with that framework.  Based on this understanding, we identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.  This includes consideration of the risk of acts by the entity that were contrary to applicable laws and regulations, including fraud.

In response to the risk of irregularities and non-compliance with laws and regulations, including fraud, we designed procedures which included:

• Enquiry of management and those charged with governance around actual and potential litigation and claims as well as actual, suspected and alleged fraud; 

• Reviewing minutes of meetings of those charged with governance;

• Assessing the extent of compliance with the laws and regulations considered to have a direct material effect on the financial statements or the operations of the company through enquiry and inspection; 

• Reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations;

• Performing audit work over the risk of management bias and override of controls, including testing of journal entries and other adjustments for appropriateness, evaluating the business rationale of significant transactions outside the normal course of business and reviewing accounting estimates for indicators of potential bias. 

Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation.  This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance.  The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Sense Network Limited is a private company limited by shares incorporated in England and Wales. The registered office is Brookdale Centre, Manchester Road, Knutsford, Cheshire, WA16 0SR.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.

The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.

The company has taken advantage of the Reduced Financial Reporting Regime, as permitted by FRS 102 regarding the disclosure requirements of Sections 3, 4, 7, 11 and 33 of the standard.

The financial statements of the company are consolidated in the financial statements of Adviser Services Holdings Limited. These consolidated financial statements are available from Companies House, Crown Way, Cardiff CF14 3UZ.

Atruet the time of approving the financial statements, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Thus the directors continue to adopt the going concern basis of accounting in preparing the financial statements.

Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.

When cash inflows are deferred and represent a financing arrangement, the fair value of the consideration is the present value of the future receipts. The difference between the fair value of the consideration and the nominal amount received is recognised as interest income.

Rendering of services

Turnover from a contract to provide services is recognised in the period in which the services are provided in accordance with the stage of completion of the contract when all of the following conditions are satisfied:

•     the amount of turnover can be measured reliably;

•     it is probable that the company will receive the consideration due under the contract;

•     the stage of completion of the contract at the end of the reporting period can be measured reliably; and

•     the costs incurred and the costs to complete the contract can be measured reliably.

Please see note 2 for details on the company's recognition of accrued income.

Intangible assets are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

Amortisation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

Tangible fixed assets are stated at historical cost, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.

Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours.

The company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the company's balance sheet when the company becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method. Financial assets classified as receivable within one year are not amortised.

Financial assets are assessed for indicators of impairment at each reporting end date.

Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.

Basic financial liabilities, including creditors, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.

Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

The costs of short-term employee benefits are recognised as a liability and an expense.

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

The company operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the company pays fixed contributions into a separate entity. Once the contributions have been paid the company has no further payment obligations.

The contributions are recognised as an expense in the profit and loss account when they fall due. Amounts not paid are shown in accruals as a liability in the balance sheet. The assets of the plan are held separately from the company in independently administered funds.

Rentals payable under operating leases are charged to income on a straight line basis over the term of the relevant lease.

In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.

The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.

The payaway accrual is calculated based upon the average actual payaway made to firms across the year, applied to actual fee and commission income (FCI) received at bank and to accrued income. Accrued income is calculated as detailed below.

In addition to actual FCI received at bank, income includes pipeline FCI which is accrued for as income. Pipeline FCI is calculated based on expected income data taken from Intelligent Office with the following assumptions applied:

• Draft - cases with status changed in the last three months.

• Submitted to provider - cases with status changed in the last 12 months.

• In force - cases with status changed in the last 3 months with a policy start date of less than 3 months.

• Due - cases with status changed in the last 3 months.

Once a figure is derived, 75% of it is recognised as income to allow for cases not proceeded with, based on historical experience of successful policy completion allowing room for cases not taken up, for example, due to underwriting decisions on protection policies and mortgages where sales do not proceed to completion.

An analysis of the company's turnover is as follows:

All turnover arose within the United Kingdom.

The average monthly number of persons (including directors) employed by the company during the year was:

Their aggregate remuneration comprised:

The number of directors for whom retirement benefits accrued during the period under defined contribution schemes amounted to 1 (2021 - 2).

The actual (credit)/charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:

The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:

The pension charge represents contributions payable by the company to the fund. At the balance sheet date £nil (2021: £nil) remained outstanding.

The company is party to an unlimited cross guarantee in favour of Metro Bank Plc, in respect of certain borrowings of this company, Adviser Services Holdings Limited, Lyncombe Consultants Limited, Rockhold Investments Limited, Sense Adviser Services Limited and Sense Support Limited. At 31 December 2022, the net borrowings encompassed by the cross guarantee amounted to £3,032,500 (2021: £nil).

At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

In preparing these financial statements, advantage has been taken of the provision under section 33 of FRS 102, which states that disclosure is not required of transactions with companies which are part of the same group, provided consolidated financial statements in which the company is included are publicly available.

At the balance sheet date amounts due to the company from group companies were as follows:

The amounts above are unsecured, interest free and repayable on demand, and have therefore been classified as due within one year.

During the year the company paid consultancy fees of £3,600 (2021: £21,600) to Rory Percival Training and Consultancy Limited, a company under the control of an individual who resigned as a director of this company in the year.

In the opinion of the directors there are no further transactions with related parties requiring disclosure under Financial Reporting Standard 102 Section 33.

The company's immediate parent undertaking is Sense Adviser Services Limited, a company incorporated in England and Wales. The ultimate parent company is Adviser Services Holdings Limited, also incorporated in England and Wales. Copies of the consolidated financial statements may be obtained from the Registrar of Companies, Maindy Way, Cardiff, CF4 3UZ.

The ultimate controlling party of the company is the board of directors by virtue of their majority share holding in Adviser Services Holdings Limited.