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Malcolm Murray: Food for thought

Can financial services learn lessons from the horse meat scandal?

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The recent furore over certain unexpected ingredients appearing in the food chain has invariably been linked with the downward pressure on prices. Involved in the outcome were producers, middle men, retailers and consumers.

Can financial services learn any lessons from what has happened elsewhere? Let us start with the advisers. Motives that impel firms will differ. There are those who are driven largely by the profit motive.

They will usually want to use the cheapest services available. There are others, and a growing number, who are driven by a desire to provide a service that will enhance their standing with their clients. The latter will want to strike a balance between price and the quality of service that they provide. In pursuing their goal most advisers will be outsourcing many of their functions, from investment management to wrap services.

By doing so they seek to concentrate on those aspects that they feel are not transferable, such as face to face meetings with their clients. However, outsourcing is in itself a reflection of the judgement exercised by the adviser. Their own reputation is on the line and nowhere is this more apparent than in the choice of wrap service or investment manager.

What does this mean for the wrap services themselves? Similarities do exist. There are those who have chosen to compete largely on price. Many of these are loss making and have been since they started.

The margins among those that are profitable are considerably less than those that many life companies had been used to generating on their legacy business in the past. It begs the question – how long will the shareholders of those wrap services that are currently loss making be prepared to wait for a return on their investment?

Additionally, will they be prepared to provide the funds needed to bring the functionality of their platforms up to the standards demanded by leading advisers and financial planners? It may be that a sector of the market will be satisfied with vanilla service and functionality but the problem there is that market is dominated by smaller portfolios. Experience tells us that offering top quality service on portfolios of below £50,000 is rarely profitable, let alone to a degree sufficient to encourage staying in the race.

The most recent surveys indicate a growing number of advisers and financial planners now place “ease of use” and “sustainability of the wrap service” as prerequisites in their choice of platforms as well as the cost of the service. In other words there has to be a balance.

Such firms are usually offering a lifelong service to clients, and their families, and want to be sure that the platform will provide what they need at a reasonable price and for the long term. There are no short cuts. Profitability is the key. Only when that is achieved, after investment in systems and people, can consideration be given to price reductions. Otherwise, do not be surprised to find the sort of problems that followed the price war in the meat industry occurring in the world of platforms.

Malcolm Murray is head of marketing at Transact

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. This week we identified that it would cost a client around £55 a year more if they were placed on Wrap Y rather than Wrap X. Yet Wrap X was unable to provide real time valuations with our back office system. Therefore with the client’s agreement we went with Wrap Y. Why? Because £55 does not go very far when we have to manually get valuations and update funds for the clients regular review. Service, efficiency, ease of use are vital and there is far too much emphasis on cost. And X or Y are not Transact!

  2. It was my birthday last Friday 15th March. I was signing off an application form for a wrap provider and put my year of birth in rather than 2013!! Stupid yes but kind of understandable I thought on my birthday (you may not agree)

    Anyhow the wrap provider has decided to send back the whole application pack because of my dating error as “the client won’t have agreed it!” Well I signed it after the client had signed it so they wouldn’t have seen it anyway.

    So rather than doing the sensible thing they want to send the whole lot back to us.

    Now that is Transact and I have a solution they won’t be getting any more business from us. That should save us some money

  3. And of course it is only right for me to post this and to say that Transact have behaved exctly as a professional firm would do and resolved the issue.

    Which I think says a lot about their quality, well done and thank you

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