Advertising and marketing agency
Don't sweat the small stuff, there are three big tides shaping financial services. IFAs that take them at the flood will build strong sustainable businesses but those caught in a whirlpool of distractions will suffer slow decline.
So, what are the distractions? They are the squeeze on margins, no-load 1 per cent funds, stakeholder pensions, the burden of legislation and its associated costs of systems, compliance and training.
They are in themselves important but nothing compared with the tides sweeping in over the next 10 years – the rise of strongly branded regional, national and international IFAs with a high-street presence, the transfer of long-term retirement and care provision from state to private sector investment and insurance schemes and the increasing involvement of employers in the financial lives of employees.
IFAs will need to develop a more robust approach to their brands, increasing demand for whole-of-life financial planning and a rise in the marketing of workplace fee-based advice.
Let's start with brands. There are no brand-dominant high-street IFAs. Yes, there are national networks but most hide behind the names of local practitioners. There are even some with a reasonable level of regional name awareness but there are none with enough brand saliency to generate high levels of recall in response to the question: Where do you go for independent financial advice?
To be blunt, IFAs as brands score low on the familiarity/favourability curve at a national level. This is unsurprising. Traditionally, financial advisers have been local businesses marketed by word of mouth, careful networking and the occasional small Yellow Pages ad.
Some have cultivated a sideline in journalism, supplying articles to local newspapers and radio. That is not to knock this activity. For sole practitioners or small partnerships, it is a low-cost way to target the local community.
Some of these more select operators will survive in the new world if only by dint of a warm and loyal client base although they will almost certainly have to up their game if their clients' children are to see them as their first choice for financial advice.
But for IFAs in little offices above retail units down quiet side streets, the world will not be so cosy. The fight is on for the mass affluent and, however overused that phrase, there will be a battle royal between the big financial brands as they set up private banks, wealth management centres or simply their own IFAs.
Bradford & Bingley recently served notice with an IFA brand, The Marketplace, in 500 branches. Bristol & West is recruiting 70 IFAs as part of its Open-Finance initiative in 300 branches. Apparently, neither company thinks its existing IFA brand is sufficiently strong to merit using them in branches.
HSBC, through First Direct, has Capital IFA. How soon before it rolls that out in branches that do not merit private banking? Will Barclays take its move from product manufacturer to semi-tied adviser to its logical conclusion and become an IFA with an investment panel selecting best in breed? What all these moves have in common is client lists to die for and the ability to exploit the same economies of scale identified by the networks.
This new breed of IFAs knows there is a market out there for independent financial advice that will continue to grow. Why? Because the Government has all but told them that it will – not so much through deliberate policy – in fact, one detects a distinct antipathy towards financial advice – but more through the law of unintended consequences.
For instance, the need for pensions is now the subject of discussion. Should people have one, will they be better of than on “state + Mig”? Will annuity rates be worth saving for? Do tax advantages compensate for lack of flexibility or are Isas and property better investments?
Unless the state wants to provide, people should not need to discuss this. The fact that they do means more and more will need to seek professional advice to find the answers.
If the Government understood the psychology of long-term saving, it should be obvious to all that a pension comes first. The Government knows this and, to compensate for creating uncertainty and moral hazard, it is introducing compulsory pensions for all via the back door.
True, it has not admitted that as yet but look at its record. It introduced stakeholder. It allowed the impression to be given by the press that every employer must offer stakeholder and contribute 3 per cent of salary. Now we know that is not exactly what it said. In fact, employers without pension schemes merely have to let emp-loyees invest in stakeholder through the payroll system.
However, the Government was clever to say that employers with existing pensions only need to contribute 3 per cent of salary and they can forget about stakeholder. But now that the structure is in place, it does not take much to see a future Chancellor bemoaning industry for failing to improve the lives of staff and therefore making 3 per cent compulsory on all pensions. It is easier to “encourage” employers to save on behalf of employees than it is to “force” employees to save for themselves and so, gradually, the Government shifts the burden of provision to employers.
Small companies will need professional advice to cope with stakeholder and even big companies will need to consult professionals over changes to defined-benefit schemes or group PPPs.
But more important is the growing realisation among many employers that financial uncertainty is the biggest cause of stress among employees, particularly the cash-rich, time-poor, and that, after a healthy pay cheque, the next most valuable benefit is a pension, followed by life insurance, PMI, critical-illness cover, income protection, share options and, of course, advice.
A recent report in Money Marketing cited advice as the universal benefit among FTSE 350 companies. As the battle for recruiting and retaining talented staff intensifies, companies increasingly seek to become ingrained in their private life – effectively building their brand internally by focusing on the deep-rooted psychological needs of security and feeling wanted. Wages alone do not do this.
Employers need to demonstrate a concern for employees' long-term financial health. Few companies are well placed to provide advice and will look to advisers with recognised brands that complement their own and that their employees can trust.
In future, the biggest single source of IFA business will be finance and HR directors, with the added attraction in a 1 per cent world that they are used to paying fees for professional services.
This is a great opportunity for IFAs – a chance to capture mass affluent clients en masse and to be introduced to them by a trusted fee-paying employer.
Even for those without a high-street name, there are still 350,000 small businesses in the UK which might welcome the more personal attention of an established local operator.
The Rotary Club network is not dead yet but a strong brand at local, regional or national level will be absolutely key to building a sustainable competitive advantage in the world of workplace marketing.