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Future imperatives

The threats we face in the market are numerous, from rivals&#39 aggressive behaviour to hardening consumer attitudes towards financial planning and products.

Our historic core activity has been to act as a service provider to IFAs. The service which IFAs have traditionally bought has been the authorisation to give financial advice through the network. This service was typically paid for by enhanced commission terms.

Our service has expanded to include compliance consultancy work through IFA Professional and a compliance offering for mortgage and general insurance brokers through Lifetime Insurance Mortgage Experts.

At the end of 2002, we ceased to be exclusively a service provider to IFAs and now operate as an IFA as well through Capital Planning UK.

Our core expertise has been rooted in compliance and investment-related products. So what is changing? In the past, our financial advisers have focused their efforts on giving advice in relation to the long-term savings requirements of their clients. This role has been expanding to include the servicing of the entire financial planning needs of retail clients.

At the same time, increasing costs and volatile demand have made sales management and achieving growth imperative. This will increasingly force IFA firms to join networks or, more probably, consolidate.

This may create a major threat to one of our true competitive advantages unless we react by growing faster still and developing effective networkand non-network-based solutions aimed at satisfying consumer needs.

If we wish to maintain our position as a market-leading distributor of financial products, we must focus on volume and profit growth. Our primary targets to achieve this will be recruitment and improving productivity levels and our share of value added by reducing our unit costs of production.

Substantial volume growth and reduced unit costs will only be achieved in a generalist retail-facing business which has a diverse service offering. We must also expand our activities from investment products to all financial and related products and from excellence in compliance to excellence in sales management. Further acquisitions are inevitable if we are to achieve diversity and growth.

In the next five to 10 years, we will continue to evaluate the nature of our relationship with our key suppliers, the life companies. While we expect to see contraction in the number of these suppliers, we expect our trading efforts to focus on a smaller number still.

We will, however, continue to demand the best commission rates, customer support levels and the highest-quality products as an integral part of this process and remain an independent advisory firm.

These same issues are faced by most advisory firms in the long-term savings market. This is why most businesses in the sector struggle to be successful. We have an opportunity to break away from the pack because Tenet has a number of assets which competitors do not have. These include:

•Critical mass, giving buying power and economies of scale.

•A diverse service offering.

•Enthusiastic and skilled employees.

•Strong financial backers.

•Positive market image.

•Improving regulatory record.

•Strong underlying cashflows.

•Established brands.

Although the shape of fture regulation is clearer than at any time since 2000, the impact of the proposed changes will not become clear for at least five years. This is a risk in itself and we must respond accordingly.

What is certain is the regulatory burden will get heavier and more costly. The FSA is likely to be more consistent than the PIA in applying the rules. This should improve the perception of the value of the services that big businesses such as ours provide to advisers while also posing new problems.

The winners in this environment will be those who continue to offer quality service at the right price. We will have to become increasingly sophisticated in our dealings with consumers across the spectrum to help advisers with business profitability. We will also have to continue to deal with life companies and advisers fairly and with integrity to ensure that not only do they benefit from dealing with us but vice versa.

Finally, we must acknowledge that we are an IT-dependent business and will need to maintain a strong financial base to support our growth track. Both these issues must remain high on our agenda, whatever the future brings.

Simon Hudson is chief executive of Tenet Group


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