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’!

Last week I mentioned that Dan Waters of the FSA, had commented in a speech to a McKinsey’s Conference about Wrap and the FSA’s forthcoming explanation of their ‘deliberations’. In the same speech, Dan also talked in detail about how the FSA is looking to extend its view of the investment value chain to look at product governance and oversight.

The FSA has traditionally focused its regulatory attention on the point of sale transactions at the end of the value chain. As most of you will know, this includes things like Key Features, Adviser status and commission disclosure, as well as rules on how performance is presented. The FSA has become increasingly concerned that this focus and potential for intervention may be too late, and could leave the door open for more ‘mis-selling scandals’, which they are determined to avoid in the future.

Dan Waters has a specific interest in tackling risk management as he is the first ‘Director of Conduct Risk’ at the FSA. As a result of his view that the regulatory focus may be too narrow, he is looking at how they look more deeply and further up the value chain to include product design and oversight by the product providers (manufacturers). In doing so, the FSA intend to look at the business models of providers to see what the core strategy and drivers of income and profitability are. They will be looking up-stream of the point of sale including product development and marketing, as well as down-stream at post-sale handling and servicing. Whilst you may think that this would be covered and motivated by the obligations of TCF, the FSA seems to be unconvinced that Providers are designing products that add customer value or address real needs. Dan Waters believes that Providers are focused on designing what can be sold, or trying to beat a competitor, rather than trying to meet the needs of the consumer first and foremost.

How will this extension of supervisory scope manifest itself? Well it would seem that the FSA will be looking to test consumer outcomes (and/or see what testing the Providers have done?). They will be looking at stress and scenario testing to see what type of customer is and isn’t appropriate for the product and checking to see if the Provider has been clear about what the product does, who it is for and if certain key characteristics such as the nature and scale of risks is properly presented. The stress testing should look at a range of market conditions that could trigger certain product features that may not be immediately obvious or expected in normal conditions. The triggering of MVAs on With Profit Bonds in the past was a surprise to some customers (and advisers!) and I expect this is the sort of area that the FSA will want to expose as a potential risk. The process should be part of a systemic and objective assessment that is built into the existing supervisory framework.

Some may fear that this interest in the product governance and design is leading to a situation similar to some EU Countries which regulate product design. Dan Waters said that this wasn’t their intention. However, it is clear that whilst the spotlight on distribution is not changing, the spotlight is going to be extended to look at the products themselves and the motives and behaviour of the manufacturers. RDR is likely to cause some Providers to redesign parts or all of their product portfolios. In doing so, they should bear in mind that the FSA is going to be keeping an eye of what they build and why, as well as how it is sold.