Speaking at the recent Westminster and City conference Towards a New Distribution Structure, I had the dreaded after-lunch slot on the second day. There were around 100 delegates, mainly senior and middle management from providers. I wanted to make sure everybody was still awake, so went for a bit of audience participation, as follows:
“How many here work for manufacturers of life and investment products?” About 80 hands went up.
“Keep your hands up if you have bought an investment product in the last year.” Around 20 hands stayed up.
“Did you buy it from a company other than the one that you work for?” About five hands stayed up.
“Did you buy it through an IFA?” Only one hand stayed up.
So, I said, you manufacture products you do not buy and distribute them through outlets you do not buy from. Is it any wonder that we are getting it wrong?
My theme was how to deliver advice and products cost-effectively.
The one constant throughout the conference is that we cannot continue as we are. The maladies are well known:
- Manufacturers’ margins are being squeezed while they are still trying to buy market share through unsustainable commission levels.
- Manufacturers are living on recycled business – facing consolidation or failure. More than 25 per cent of the UK savings market is now in closed funds.
- The distributors – networks and service companies – are struggling to maintain profitability and major collapses are happening or are predicted. Their business plans, like those of manufacturers, are based on recycling, with teams of salespeople moving from one home to another but still doing the same old thing in the same old way.
- The advisory businesses, both nationally and locally, are struggling to service clients profitably and need to invest in new systems but have limited capital to fund any growth plans.
Were there any answers? Worryingly, most of the debate seemed to be on manufacturer-distributor relationships – who is paying the most commission, getting the best admin support, funding the movement into new operating systems and wraps?
Thankfully, the more enlightened in our industry now realise these debates just lead to sticking plasters that will only temporarily hold together a broken system.
It is now accepted that the balance of power and the value in the supply chain has shifted. Any mature retail market has three main parts to the supply chain as shown in Figure 1.
For most of my time in this business, the power has been with the manufac-turers, the life offices, the invest-ment houses and mortgage banks. This has changed and the manufac-turers are in a desperate fight for distribution. This is where the industry is still getting it wrong. All the focus is on the manufacturer-distributor relationship. The businesses which will win are those that take a 180-degree turn and face the customer.
The winning businesses will be those that realise that the power needs to move right through the chain to the customer and do what successful retailers in other sectors have done for years – give the customer the power to make the choice – and then be the company they choose.
I believe we need to see the rise of a new type of retailer – one that understands their main product is advice and knows how to deliver and charge for it properly. There are a number of good examples already in the IFA sector but none as yet has the scale to make a major difference in the market right now. The supply chain should be as shown in Figure 2
Manufacturers and distributors can often be the same business under the same ownership. The successful business will be the one that grabs the retailing space.
A customer wants solutions, not products, a business that accentuates the value of advice and depreciates the value of the product, and above all, one that gives the customer the power to choose.