Since the mid-1990s the marketing strategies of major financial institutions, particularly the bancassurers, have been dominated by customer relationship management (CRM). These initiatives have sought to put customers at the heart of the business, ensuring that financial products were presented to them as a direct result of understanding their needs and attitudes to risk.
It would be reasonable for IFAs to argue that they have always used CRM.
Namely that during the fact-find and ongoing dialogue, a clear understanding of customer needs is developed, coupled with a level of trust and confidence.
Face-to-face contact between IFA and customer provides an opportunity for a mutually beneficial relationship. When this is effective, the IFA provides an essential role as interpreter, advisor, researcher, etc, ensuring that the most appropriate products are delivered. In this relationship a degree of loyalty exists between IFA and customer.
The knowledge that is generated about the customer's needs may not always be maintained electronically and used in a proactive sense but it is just this type of relationship that major providers are seeking to build through CRM.
There is no doubt that IFAs and major providers can learn from each other to ensure that all parties build long-lasting and profitable relationships with customers. Indeed, this probably offers the best route for co-operation in an increasingly fragmented market.
For IFAs – particularly the bigger networks – there is an opportunity to employ database marketing techniques to ensure that customer details are held electronically, updated regularly and used to arrange regular reviews.
The economics of electronic dialogue are such that there is no reason why IFAs cannot encourage their customers to communicate and share information by digital means. The investment in the technology required can be modest and the nature of the relationship between IFA and customer lends itself to digital communication. The opportunity here is to enhance the personal and informed nature of the relationship and not allow technology to distance the customer from their adviser.
It is precisely this detachment that the major providers are seeking to overcome through CRM. It is rather ironic that if an organisation could combine the investment muscle and brand presence of a major provider with the face-to-face skills of an effective IFA you could argue that true “relationship management” could be realised.
For banks, insurance companies and investment companies there is an opportunity to work in partnership with IFA networks to tailor product features to customer segments – and in some instances to share knowledge of customer segments at an aggregate level. While there are examples of co-branded promotionsand so on, this degree of cooperation is not industrywide. We have to look to other industries for the best examples.
In packaged goods, for example, manufacturers have begun to work closely with retailers to develop, stock, promote and drive product sales to highly-targeted customer segments. This has spawned a number of category management techniques where information about customer needs collected by manufacturers is pooled with data about customers' in-store behaviour.
All parties derive benefit and the parallels with the financial services industry are obvious. The retailer maintains a direct interface with customers and the manufacturer provides a qualitative view of customer behaviour. But there are barriers to such initiatives in the financial services industry. It is essential that IFAs retain their independence and that regulations including data protection are not compromised. The category management initiatives also raise complex questions about who owns the customer and the potential for confusion about where the relationship should exist.
For IFAs there are issues of confidentiality and of basic economic reality that such initiatives must be commercially viable and ultimately benefit all parties if they are to survive.
The opportunity to explore co-branded promotions, tailoring products, joint research on customer needs and information sharing on a strictly controlled basis offers great deal of potential.
Research conducted last year by Mori also highlights a degree of channel fragmentation in the financial services marketplace. This has resulted in a willingness for customers to utilise the direct channel for some products (and particularly those that are price sensitive) but show a marked preference for face-to-face contact for more complex products where service and performance are more critical.
This phenomenon is also being fuelled by the rapid increase in potential clients with a medium to large sum to invest and a lower sensitivity to risk seeking a broader package of investment and insurance products. This could well result in providers and IFAs having only part of the relationship with the same individual.
The pace of fragmentation is increasing, fuelled by digital channels, and will increase as interactive television takes hold over the next five years.
Investment in CRM within the major financial institutions will continue.
For IFAs, there are immediate opportunities to enhance their customer relationships with the inno-vative use of technology and to continue to champion the needs of their customers in co-operation with providers – yet still maintain that crucial level of independence.