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New Year revolutions

Retail financial services can finally shake off the bad image of the past.

I love this time of year – the attitudes we see in early January are a splendid microcosm for the views of our industry.

Whether it is the long, dark evenings, the dismal weather or people are fretting about broken resolutions or how many pounds they have put on over the festive period, one never has to travel far to meet a grumbler or two.

As these events are pretty much givens for this time of year, I don’t really know why people can’t approach the New Year in a rather more buoyant mood. After all, what’s the worst that could happen?

Ok, if you work for a big life office you might be waking up every morning wondering how long your archaic business model has to run or just how rosy the ABI’s next new business announcement might be but it could be worse. Like the snow building up on the car in your driveway, you do have the option of brushing it off and moving on.

That said, and as we all know, if you leave it too long, ice may start to form and you might need to get the scraper out. Far better to address your issues before the ice becomes too thick.

At Nucleus, we have been lucky enough to start with a clean sheet of paper – while this brings its own issues it also means that we don’t have to worry about clearing the ice from the windscreen before we can get moving. Similarly, we do not spend all day complaining about this regulation or that political interference.

Consequently, we have entered 2007 with a smile on our corporate face and a spring in our step.

Our optimism is partly based on the fact that we are now live but is rather more founded in a belief that this will be the year in which the retail financial services sector finally shakes off the malaise and bad habits of the past.

The consumer demand is there – the challenge now is for the industry to develop and offer propositions that are valued by the public.

I suspect the real issue facing the big insurers is the increasingly complex issue of customer ownership. How can an intermediated sector deliver a modern solution without having control over it? This is the crux of the problem that has been growing and (im)maturing over the last 20 years.

As other sectors such as banking have embraced technology and are generally now able to deliver online, modern services, the old life industry/IFA model has been increasingly exposed as bust.

Whose side can an IFA be on? It can only be the life office or the client – never both. IFAs must decide whether they are selling products on behalf of a provider or providing a service on behalf of their clients.

Alongside this muddle, asset managers groups have a confused model in which it is unclear who is the distributor – is it the life sector, fund supermarkets or IFAs, or all three? And crucially what margin is sustainable for each? Is it better to stand up for a full margin in a transparent wrap model or expose yourself to some serious squeezing at the hands of a supermarket?

I expect that 2007 will see the more progressive groups start to break away from the old model and focus instead on commanding a fair margin for excellent performance.

The entire premise of Nucleus is that the adviser/client relationship and transparency are everything and the function of a provider in an open architecture world is largely a piece of software, some regulatory permissions and a TCF mindset.

I daresay that we will have some challenging days ahead but as yet we have not really encountered any meaningful objections to what we are doing.

I guess that when we do, we will reach for the wise words of Albert Einstein “Great spirits always encounter violent opposition from mediocre minds.”

As the industry seeks to drag itself away the paternalistic (and dark) days of the past, these words should ring in its collective mind.

Change that is driven by market demand is far more powerful than change enforced by politicians or regulators.

The FSA has made significant inroads into creating an environment in which the market can function more effectively – the onus is now on the industry to replace the hyperbole with action and really start to do something positive.

So what about Nucleus’s New Year resolutions? Well, we don’t have any and anyway, we are much more interested in revolutions than we are in resolutions.

David Ferguson is chief executive of Nucleus.


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