A recent article by KPMG corporate finance partner Richard Clarke contends intermediaries closest to achieving a truly national brand will be “best placed to take advantage of the forecast earnings growth for IFAs”. IFAs must now put branding top of the list to survive in an evolving financial services marketplace.
Branding has long been a second priority for intermediaries. Where providers and investment houses have spent millions on creating identifiable global brands, the IFA sector has been slow to develop brand equity, with recently launched “nationals” the only IFAs to prioritise branding as a cornerstone strategy.
So why has the sector been slow to embrace brand-building? The IFA sector has traditionally been very fragmented, with small firm size, word-of-mouth referrals and provider-sponsored marketing which negated the need for IFA branding. This effect has been compounded by the emergence of networks, where bulk negotiating power has protected IFA interests, providing a disincentive for IFAs to build their size, brand and consequent negotiating power.
However, the marketplace has evolved to the extent that IFAs can no longer afford to ignore branding. Falling commission, the 1 per cent stakeholder world and pension misselling mean that intermediaries can not rely on provider marketing. Falling commission will squeeze provider margins, reducing their marketing spend. Furthermore, the need for perception of independence has become paramount in light of industry criticism.
Indeed, if intermediaries are to follow the accountancy and lawyer sectors' nirvana of fee-based advice, they must move away from provider-sponsored marketing and invest in brand development. A consumer's image of homologous IFA services means companies need to develop brands to create perceptional differences to develop a competitive advantage. This is made more important by the consumer's lack of understanding of the financial community and confusion presented by different types of intermediaries. Distinct brands become increasingly important as IFAs continue to expand.
Moreover, any IFA intent on expanding must develop their brand. With Misys reaching saturation point in the UK market and looking to Germany and nationals looking to the lucrative expatriate market, a cohesive brand strategy has become essential. As with global services industry brands, the maintenance of strong brand consistency and equity is paramount to those with global aspirations.
It is also imperative that intermediaries invest in branding for the survival of the industry. Negative perceptions from pension misselling, lack of transparency on commission and hard-sell techniques have conspired to reduce consumer confidence and sully industry perceptions.
Branding is also essential to profit from evolution in the financial services market. While depolarisation remains unresolved, distribution will form a key battleground for competing intermediaries. Fundamental to long-term distribution growth is establishing a brand to support distribution capabilities and maximise channel efficiency.
As mass-market commoditisation occurs, so high-equity consumer brands such as Virgin start to move into the financial services marketplace. IFAs face a huge competitive threat from these established brands and must ensure their brand is sufficiently developed to attract consumers as further commoditisation occurs. Although brand development has been neglected previously, IFAs would do well to make it a key strategic consideration now.
Charles Ansdell is corporate relations manager at Inter-Alliance Group