Hi there!

Distributors
• Have you read the RDR papers and understood the implications – not just what the journalists say or some of the rumours and interpretations of others?
• Do you understand the differences between ‘independent advice’ and ‘restricted advice’ – which best suits your current/future business model (the scope of what an IFA does today, may not be sufficient for post 2012)?
• Do you realise that ‘Adviser Charging’ applies to ‘independent’ AND ‘restricted advice’ (Bancassurance is not ‘getting away with it’ as someone recently claimed)?
• Do you already charge fees in the way you will post 2012… if not, do you have a plan for how you will do so… how will your customers respond?
• Do you realise that Restricted Advisers – including those offering ‘Simplified’ advice are required to have the minimum threshold of QCF level 4 that Independent Advisers do (some think Simplified Advice has a lower threshold)?
• Existing Advisers must have achieved QCF level 4 by the end of 2012, otherwise they cannot advise – even if they are supervised! New Advisers after 2012 may be able to advise – supervised – once they attain QCF level 3
• Will you segment and focus on Wealth Management or offer a mass-market service – can you do so profitably – what will you do about non-profitable customers (do you know who they are)? Will you ignore them, outsource servicing or try to offer an automated/call centre Simplified advice service?
• Will distributor scale (Networks/Nationals/Bancassurance) prevail – obtaining discounts to pass onto customers, thereby offering potential savings to customers – or will small specialists build better relationships and trust?
• Have you looked at how you can optimise efficiencies to ensure that your business model will be commercially viable in what is likely to be a more price competitive market?
• Failing to plan is planning to fail… this applies to business as it does to customers
• How will you collect fees – Cheques (being faded out), Standing Orders (lack control), Direct debit (you have to have scale), via providers (fee offset)

Manufacturers
• Are you putting off acting on the RDR proposals until they are more clear?
• Do you know how your business will survive and grow under the RDR regime (strategic view and operational view)?
• Do all your key managers know and understand what RDR will require of your business?
• Are you aiming at broad product segments or niche dominance?
• Will you be competitive… looking at product segments – distribution channels – brand strength – price – cost efficient?
• Which companies do you expect to survive/disappear?
• What is your M&A strategy (aquire or be aquired)?
• Are Platforms an opportunity or a threat to your business model?
• Will ‘Product Wrappers’ displace Provider Products?
• How many Platforms are needed and will there be expansion or consolidation?
• Do you rely on independent adviser distribution or choose to ‘own’ distribution?
• How many Product manufacturers will survive the next five years?
• What flexibility of options for ‘Fee Offset’ against the Product will your systems need to allow?
• Which fees can come from the products?
• Will the Distributor have to run multiple illustrations to show different scenarios for how fees can be taken?
• How will you manage ‘Decency’ checks?

There are many more questions than we have set out above and both manufacturers and distributors need to consider how they would answer them and what the implications are for their business. The market will change for all parties over the next five years… the survivors will most likely be those that are evaluating their position and responding now. There is no simple or right answer and the only constant will be change, but those that do not see the need to adapt, will most likely not survive.

This week sees the publication of our B2B Portal Survey for 2010.

We’ve spent a good number of weeks, talking to all the major B2B portals, gathering hard data as well as their thoughts and aspirations on how their businesses are going to respond to 2012 and RDR et al.

On the face of it, they continue to grow with Exweb from 1st – The Exchange dominating the market with 14.2 million quotations in November (our sample month), representing 61% of all quotations being run via on portals; Assureweb and Webline chasing with just under 4 million quotes and 4.5 million respectively. I was interested in acquiring data for True Potential and while their market share of quotations is low at 1½% (representing 340,000 quotes) their conversation of the quotations to electronic applications is by far the highest in the market. Currently they achieve a 3% conversion rate compared to their nearest competitor achieving only ¼%.

In an extract from our report, the graph below shows the difference in conversion of illustrations to real new business:

Now this got me thinking – there has always been an issue with portal comparison services – they are designed to proliferate individual illustrations from all the participating providers and from the portal perspective, the more the merrier. In fact, for some of the portal commercial models, the greater the number of illustrations generated, the bigger the invoice!

It is without doubt that for ‘commodity products’, comparison engines are very helpful – some time ago, I remember doing some analysis that suggested that over 60 percent of term business was ‘placed’ via a portal. I use the word ‘placed’ advisedly, because by comparison what has always eluded the portals is fulfilment (business submission). With illustration to application ratios of over 20 or even 30 to 1, it’s mightily inefficient. In fact, with the advent of advanced product provider extranet services, advisers use the portals for initial market analysis and then repeat the whole process again prior to submitting the business (as final confirmation of what has been proposed and agreed). The providers struggle to identify the effort and cost of new business acquisition against actual business put on the books. The problem is that there is no direct correlation between client data used in the pre-sale process and business submission stage.

In the past, I have written about the allure of ‘DIY’ portals. Indeed, you can understand providers, distributors and solution vendors getting together in order to provide a greater amount of process integration – a cradle to grave approach. It would appear from the data that we have acquired, that solutions which focus on the elusive STP, like True Potential, are starting to drive process efficiencies and to reduce the proliferation of pre-sales transactions that are largely ‘throw away’ effort. As I have said before, I really do believe the other portals can (and should) capitalise on this approach. In fact, there is a danger that failure to act could cause some of the other Solution Providers to build it themselves and so potentially introduce further inefficiencies.

Ultimately, what I have yet to see in any portal supplier’s solution is a complete, full-cycle, seamless, end-to-end process – one where from initial point of contact with a prospect, they are able to go through the advice, research, fulfilment submission and servicing processes completely, comprehensively and quickly – why is it so difficult?

The situation brings to mind a discussion I had with a very smart, senior board member of a sizeable life company back in the mid-90’s. At the time, we were discussing electronic new business and he was being particularly sceptical about the rate of adoption of electronic new business services. I suggested that by the end of the decade (2000), all business would be electronically submitted – he retorted that it would be2010.

He was wrong…- however, he was a lot closer than me and we are still frustratingly some way off!

I was recently criticised by one software supplier for describing them as small in our Professional Adviser technology column. I hadn’t done this to insult or demean them, in fact quite the opposite. In the context of the article I was trying to convey that they were nimble and that all their clients really mattered to them and received responsive attention and service. However, the comments did start me thinking.

The big companies have deep pockets and can, if they choose, weather difficult market conditions. They also have access to wider resource pools to help on big deliveries and have the ability to pour substantial R&D budgets into new solutions. The benefits are significant if large corporate projects with substantial amounts of bespoke development are being considered.

It would be a mistake however to think size brings with it certaintly of stability. The cost bases of larger companies are frequently a lot higher and when markets move against a company or product, then these companies may have less scope to reduce them and can quickly become vulnerable. It is particularly true when discussing a division of a larger company where the relative size compared to the overall organisation is very small. I once worked for AT&T, a huge global company, which had a reasonable presence in financial services in the UK (owning a third of The Exchange at the time). However, the relative size of the UK business compared to the US was so small that it closed the UK operations virtually overnight without batting an eyelid and leaving some clients poorly served.

Some of the smaller companies – if focused on a niche area, may actually have more domain knowledge than exists in much larger organisations and may be closer to the clients and more nimble in how they respond to market opportunities. In terms of financial longevity, some relatively small firms have a substantial user base and therefore will always be of value in the market and even if they hit hard times, a competitor may buy them to access the user base.

The bottom line is for product-based companies, I think size is not of over-riding importance, as long as a critical mass of clients is reached and as long as the company is in good financial health. If the companies product and service is compelling and the management team is sound, then success and longevity should follow. For service delivery organisations, size does become important and prospective clients would do well to check that the resources of development partners are not going to over stretched before they contract with them. So, back to the company that took offence at my comment about them being small, perhaps their repost should have been – ‘they don’t make diamonds as big as bricks’!