In the past, many of us have been guilty of talking about the “cottage industry” basis of much of our working community. There was, and still is, some truth in that description of intermediated distribution but the subject has always been deserving of much sharper analysis. That is especially true today when there are less than 30,000 advisers left, with the prospect of another step change downwards next year. We need new models and we need them now.
Why has a sector packed with entrepreneurial talent and energy been so lacking in creativity when it comes to devising new ways in which intermediated advice can be successfully structured, both to deliver for the consumer and also make good profits?
One answer for some is regulation. I disagree. Regulation is a major consideration but it’s not a constraint. In fact, it’s both a catalyst for, and driver of, change.
Others would say that legacy is the real constraint on innovation – legacy thinking, liabilities, cultures, technologies.
I know from my own experience just how hard it is to deal with legacy. Whilst there were challenges in starting J. Rothschild Assurance, Foster Denovo and Caerus, they did not compare with the difficulty of turning around Inter-Alliance.
But level of difficulty can do as much to promote regeneration as restrict it. So, whilst legacy is another consideration, we need to keep looking for specific causes of our failure to innovate successfully.
I believe, however, that one specific aspect of our history is a big part of the problem. Traditionally, we have worked hard at selling (or advising if you prefer) and at developing selling skills. By contrast, we have not been good at marketing. I have read literally hundreds of business plans over the years and, whilst they always specify what kind of advice and advisers they will attract and give detailed projections for financials, they rarely describe with any credibility the types of consumer they have in mind or the means by which the new enterprise will establish itself in named markets. The assumptions were, “if we get the advisers, they will get the clients”. And, whilst that’s true, the end result was usually an enterprise that could never produce an acceptable return on capital. We merely further institutionalised a product-led approach as opposed to a market perspective.
One framework for thinking about this might be as follows. Prospecting was a method of filling an adviser’s diary. Marketing is about filling the diary with appointments when, in advance, the adviser knows the consumer has a need for his/her services, can afford to pay for them and there is good reason to believe the advice will be accepted and implemented. Sales skills are enormously important and of great value to the advised and the adviser. But sales ability is at its most powerful when applied in the right context.
Although there are some significant exceptions, new advisory propositions have tended not to help advisers become more effective marketeers. As such, they have just scaled up a fundamental inefficiency. An individual adviser can get along with this inefficiency. A business with the necessary infrastructure to keep advisers and clients safe in a regulated world cannot.
There are signs that more and more people have tumbled to this and the FSA’s guidance on segmentation has helped increase awareness.
Those looking for tomorrow’s winners in distribution today should focus on the marketing dimension. We would all do well to ask ourselves, “what are we doing to first identify suitable markets and then, as a consequence, deliver products, services and processes that compliantly satisfy the needs of the individual consumers in those markets?”.
Keith Carby is chief executive of Caerus Capital Group