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Outside edge: John Cowan

I was at Celtic Manor a few weeks ago attending Money Marketing&#39s G80 Conference held for IFAs and product providers to debate the impending changes to polarisation, CP121 and the future of the financial services industry.

Perhaps it is an age thing but I could not help reflecting and contrasting the unfolding events with those of the late 1980s when, following the introduction of polarisation, we had an undignified scramble for distribution.

Back then, product providers could make money out of product manufacture, investment management and from a few of the other links that made up the value chain. They had plenty of capital and some of them threw it around in the pursuit of controlling distribution or, at the very least, to prevent themselves from being locked out from parts of the market.

The conduct of some companies and particularly the salespeople they attracted, with their dodgy sales practices, is the stuff of saloon bar folklore. All this helped fan the flames of consumer resentment from which the industry still suffers today.

Many companies, in their attempts to secure distribution, made promises to advisers about providing technology, training and business development which would, of course, increase efficiency, productivity and profit, so everyone was going to be happy. It did not happen.

It was simply sufficient to capture distribution and make money upstream in the value chain. Anyway, the marriage of technology and the skills of data mining and customer management had not been sufficiently developed so the improvement to back-office processes would have to wait.

What was on offer was big chequebooks and easy prom-ises. It would end in tears. It struck me at Celtic Manor that those involved in the depolarisation debate were so much more sophisticated than their peers of the 1980s, yet there was a real lack of strategic understanding among a big number of IFAs.

They were still stuck on arguments about adviser status and the detail, important though it is, of the defined-payment system. I had the impression that if DPS could be defeated, the world would return to its natural state.

I wanted to believe that everyone would grasp the significance of these changes and the huge impact they are going to have on the financial services landscape.

For anyone who doubts massive change will happen or that bancassurance might be a threat, let us go back a little in time.

Who would have believed Sainsbury&#39s becoming a significant bank or someone could have built one of the UK&#39s biggest general insurers by selling motor insurance over the phone? The consumer is changing. He will contemplate new, convenient ways of buying old things. He no longer sees a logical divide between his insurance, retirement and investment needs. Many millions of pounds in advertising and infrastructure have taught him to think otherwise. In the 1980s, the bancassurers were distracted by internal politics and legacy technology.

Freed from this now and with growing CRM skills, they will not be so easily deflected this time. They will invade IFAs&#39 space armed with a regulatory support and real depth of customer knowledge. Providers are trapped between two routes to market – IFA and bancassurance. Any benefits of a growing market to them will only be enjoyed if they can secure distribution and they will fight to do so Technology will be an enabler for both bancassurers and providers to deliver an unprecedented level of service experience which will finally put an end to the current cottage industry. The providers can see the threat clearly. The scrapping of polarisation but particularly the better than best rule opens up an opportunity they are keen to exploit with a defensive eye to the bancassurers.

IFAs should only open their door to those whose chequebooks come accompanied with a genuine insight to the changing mindset of the consumer.”

John Cowan is a financial consultant


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