Nothing’s forever, after 92 years we see an old friend disappear from our high street for good. A sign of the times maybe, but what were the key contributors and the lessons retail advisers can learn?
It is clear the HMV model had not kept pace with the digital age. In 2004/5 iTunes transformed the way we purchase music. Last Christmas’s retail sales statistics show more is now purchased online than offline.
HMV did not move quickly enough to deliver streamlined online services. This was crucial to its survival, particularly when you consider its target market; younger music and video hungry consumers who are well and truly Internet savvy.
This, combined with the fact that entering a HMV store was like a trip back to the 80s, meant the HMV in-store customer experience was stale.
There are plenty of other examples of businesses that have either not seen or embraced change that have failed. The most notable to my mind was Kodak. Started by George Eastman with the slogan “You push the button, we do the rest”, at its peak Kodak dominated 90 per cent of the film market and 85 per cent of camera sales. Yet last year it filed for bankruptcy.
Kodak could be seen as the first social media company, connecting people through photography. But it is clear that a culture of complacency was endemic. Despite realising that film cameras were becoming obsolete, the board were happy letting the money continue to roll in based on a broken business strategy. Why change when you’re making money?
Kodak’s management did not want to spend time and money moving its strategy into the digital age, let alone develop smart technology to feed the demand for instant data and products.
Here is the lesson for the RDR: Leadership. Market participants are now in a similar scenario, facing uncharted territory.
Despite businesses stipulating they are ‘RDR ready’, from the survey we conducted at the end of last year, only a few are adopting relationship capital with all stakeholders in the market.
This new relationship economy means that market participants have to be flexible and nimble where their clients’ needs are concerned. They need to be fluid in service. Making it easy for clients to purchase products and services is key along with enhancing the client experience to ensure value.
Clients are more discerning than ever. They are savvy enough to check the Internet and do their own due diligence before visiting a financial adviser or going direct to buy a product. They are fickle enough to orphan themselves if they do not see value in fee-based advice or the product charges.
So adviser firms now have to ensure they have the right people in the right place with the right skill sets. This includes having a fully functional board that ensures key strategies are aligned to regulatory directives and client and stakeholder needs.
This requires effective and efficient leadership. Indeed next generation leaders without the traditional transactional ‘sales’ focus are emerging.
This is most evident in the compliance culture we now have in the City. Leaders now have to balance risk management, professional ethics and values and fiduciary relationships, with a transparent and efficient business model.
A leader now needs to be a visionary, coach, mentor, pacesetter, communicator and commander. He or she needs to think lean and ensure the business remains profitable whilst exhibiting enough value in services so their clients remain loyal.
Our survey highlighted a worrying over-confidence in the client-centricity of business operations and adviser charging facilitation as the answer to fee charging.
Conversely there was a lack of confidence in the profitability of the advice business model, product provider adviser charge validation, MI tracking firm/adviser progress and little uniformity on advice processes and front/middle and back offices.
There were also good indications that business models had been changed and were adaptable to further challenges.
This means, with the right leadership in place, these firms can be flexible enough to adapt and build in a professional culture where a true consultative process is adopted and a client will be very happy to pay fees directly.
Firms must now embrace the new relationship economy, build boards that are functional, vigilant, diverse and active, and find and nurture leadership talent that will build relationship capital to ensure all stakeholders (including the regulator) are aligned and a professional culture permeates.
Without this the salutary lessons of HMV and Kodak will not be headed and we run a real risk of distribution turbulence where broken business models will prevail.
Chris Davies is director of Engage Partnership