Until recently it was reasonable to assume the RDR would be the most substantial change in the financial advice arena that we would see in our lifetimes.
Two months ago the Chancellor changed that.
We are nearing the dawn of a retirement revolution that will transform our industry like nothing before. That the RDR is already in place puts advisers in a strong position to meet these new challenges.
One of the significant side-effects of the RDR was that it diverted most financial organisations’ attention away from the digital revolution that was taking place at the same time in the wider world. A key lesson to learn from the RDR must be the importance of not becoming similarly side-tracked while reinventing retirement products.
In fact, pension providers can only effectively reinvent themselves in the brave new world by putting digital at the heart of their new propositions. I am already regularly seeing evidence that major players are going down the wrong track.
Since the Budget we have seen three of the most significant deals in the last two decades take place with virtually no mainstream industry reaction. This does not bode well. One of the key components needed to build a next generation, consumer-facing proposition must be a holistic service to give customers a single view of all their assets.
For the last two years On Trees had been building such capability and its acquisition by Moneysupermarket.com shows the aggregator is looking to broaden and deepen its financial relationships with consumers.
To my knowledge no UK life office or platform has a similar current capability. Given how effective Moneysupermarket.com has been in building strong relationships with consumers in the personal lines market, is it wise for our industry to give them a couple of years’ head start when it comes to aggregation?
Money Hub is now emerging as a significant play in this sector. That it has been acquired by South African insurer Momentum indicates great insight by the acquirer but also throws down a major challenge to the established UK pension provider community. Money Hub has a compelling technology proposition for advisers and pension providers alike. Founder Toby Hughes tells me that the acquisition will give the business the resources to accelerate its plans to deliver leading-edge technology to facilitate closer engagement with customers through effective use of technology.
While I will take a more detailed look at Money Hub shortly, to achieve its full potential it will be important for Momentum to convince potential customers that it is not a threat to established UK providers. Companies rarely buy key technology from organisations who may be future competitors.
The acquisition by Aon of Lorica and its exceptional Bigblue technology should not be underestimated. This is another case of a key technology asset being quickly taken off the table by a very smart acquirer.
While historic assets may generate three times the profit achieved from new business and the terms imposed 20 years ago may have been reasonable then, after paying such charges for 20 years, isn’t there a case for rewarding such customers for their loyalty with a better deal?
Any business model which relies upon locking such customers in to obsolete charging structures is well and truly broken. I am frequently hearing established providers ask how they defend their current assets. That the question is even couched in such terms identifies these organisations are not being radical enough in their thinking.
To succeed in the brave new world, pension providers are going to need a new and entirely customer-centric operating model. In delivering this they need to walk the walk, not just talk the talk. This will require a fundamental change in the underlying culture of such organisations.
Successful long-term savings businesses in the 21st-century will make delivering good value to customers their most important goal, any who fail to do so will struggle to survive. Customer propositions need to evolve so that the companies consumers deal with are ones they can genuinely trust to protect their best interests.
Such services can only be achieved through deploying an outstanding customer focused digital proposition. That the leaders in this area are being so quickly snapped up should be a concern for established players. Any not already acting in this area must be at significant risk of not making the transition to the new world. They need to find the right partners quickly to deliver such change.
Ian McKenna is director of the Finance & Technology Research Centre