Life companies face extinction unless they overhaul their business models and become management consultants to IFAs, says Hargreaves Lansdown chief executive Peter Hargreaves.
Writing in Money Marketing this week, Hargreaves says life companies should follow the example of IBM, which he says reinvented itself as a management consultancy after losing ground as a PC manufacturer.
Although one or two life offices will prosper, he says reinvention is the only way that most will be able to cope with dwindling demand for their traditional products and services as investors shun the life insurance wrap.
Hargreaves says this will mean focusing on IFAs, who excel at communicating with and selling products to clients but fall down as businesspeople and administrators. This represents an opportunity for life companies, which he says should offer to run IFAs' back offices, help them with their marketing and public relations, internal reporting, recruitment and accounting.
But Hargreaves believes that firms should only target IFAs willing to tighten their belts to change their business model so they earn on the amount invested rather than on an estimate of how much will be invested in the future.
The life offices which take on such firms' back offices will be those that prosper, he says, although he points out that the 100th-biggest UK broker has a turnover “not dissimilar to that of a good pub”.
He says: “To survive, life companies must become management consultants to the teams of excellent salespeople who represent the IFA marketplace. Life companies that manage to crack running the back office for brokers – and there cannot be that many of them because many life companies cannot run their own back offices – will be the ones that rise from the ashes like the phoenix and IBM.”