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Attack of the clones

Since the introduction of stakeholder, it has become progressively

difficult to differentiate between pre-retirement products and,

therefore, providers. This position has arisen well in advance of the

introduction of Sandler&#39s simplified suite of products.

While product differentiation in the post-retirement world grows, we

all recognise that the world of pre-retirement planning has become

largely commoditised. If provider selection does not add value, we

must establish other areas in which value can be added.

The main impact of stakeholder was the introduction of the charge cap

but the operation of the free market has already caused prices to

fall well below this limit. In driving for this lower charge, every

product provider has had to simplify its product designs to

facilitate easier and cheaper processing.

Inevitably, with everyone focused on this goal, they have reached

broadly the same conclusions regarding product design. It is

difficult to distinguish between the products of many providers now

other than on the basis of charges. This argument does not hold in

the post-retirement market. The range of options is substantial and

the opportunities for innovation will increase in the simplified

world. It is here where adding value by selecting appropriate

product features will continue to work for some time.

Consider the options – drawdown, phasing, conventional annuity,

specialist annuity, flexible annuity and so on. Commoditisation in

this space is probably inevitable but is years away.

A world full of commoditised products creates new challenges and

different approaches in order to be successful. Basic questions to

ask are:

•What differentiates? This is the provider&#39s problem.

•What adds value? This is the adviser&#39s problem.

In the old world, provider selection for pre-retirement advice was

based on a few hygiene factors followed by consideration of product

design. Most leading providers would jump the necessary hurdles and

then look to include features to differentiate themselves from

competitors. This approach to differentiation does not work any more.

Many of the features that might have been added have either been

legislated out – for example, waiver – or created costs that make the

overall package appear uncompetitive. So differentiation is not about

adding features.

The next step would have been to look at investment options but even

here we are heading into difficulties.

It is now unusual to deal with a provider with a fund range limited

to its own investment managers. All have adopted external managers

either through a manager-of-managers approach or external fund links.

In many cases, providers look to give access to a wide range of

managers through the equivalent of a supermarket, making their basic

contract look very much like a Sipp (and often more expensive than a

Sipp). But, in doing so, everyone is ending up looking much the same.

It is difficult to see how an adviser might choose between providers

which have almost identical savings products and almost identical

fund ranges and, thus, past performance.

The area that providers have failed to address and the area in which

advisers would now focus is service. This is getting close to the

answer to the second question. Adding value is now about service.

Service is not simply the traditional view – turn-around times,

getting it right first time and so on. While these remain essential,

adding value through service must become far more than this for a

provider. It is also about working with advisers to add value to a


While discounting differentiation through fund range, investment

differentiation can be achieved in different ways. These are through

approach to management and communication. In both respects, advisers

and providers will have to work together.

The approach to management should be about how providers give access

to discretionary fund managers, asset allocation tools and so on.

Product design is now about creating working links between adviser,

manager and provider.

For this purpose, the “manager” might be a modelling tool or might be

a specialist fund manager. Irrespective of the approach, simple and

straightforward interactions are essential. Where this is achieved,

the adviser is in a position to simply and easily add value, working

with the manager to establish strategy, asset allocations and

specific stock selections.

In terms of communication, the main value-adding opportunity is

around accessibility – making it easier for advisers to access

investment performance data in an appropriate format allows them to

work with their clients.

Service more generally is about making every customer contact point

work for the customer. Providers must work with advisers to ensure

customer requirements are satisfied. Much of this is simple. When you

are asked to do something, do it in a reasonable time and tell the

customer when it is done. But working on the customer contact points

will provide differentiation opportunities for providers and

value-adding opportunities for advisers.

In many respects, commoditisation has already arrived. What remains

outstanding is the regulatory framework that allows advisers in

particular to work efficiently in that market. Current rules

effectively require analyses of product design, investment offerings

and other areas where there is little or no difference between

products – and then they require that the analysis be explained to

the customer, with advice being based on that analysis.

We have already reached the situation where such analyses are nearly

worthless in the pre-retirement market. The sooner the regulators

allow advisers to focus on value-adding opportunities, the better.


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