Our view is that primary advice is an appropriate and workable solution which can meet the needs of the target market in a cost-effective way. How could it be made to work?
Target market and consumer needsThe target market for primary advice is medium-earners with relatively straightforward financial situations. Consumers need to be able to answer three questions:
l How much should I save?
l What type of product meets my needs?
l Where should I invest my money?
Primary advice tends not to work in other segments, for example, lower-income consumers, because issues such as the interaction between savings and benefits and the priority to be attached to debt repayment relative to saving bring in complications which tend to be difficult to address without more detailed advice.
Similarly, primary advice is not appropriate for all middle-income consumers, for example, where existing holdings such as pensions increase complexity.
Market segmentation will be key to identifying and targeting the right prospects. It needs to take account of the propensity to buy and the expected value of the customer. There is clearly no point in targeting customers with low value potential.
Tillinghast’s analysis shows the benefits of segmenting by propensity and value. For example, excluding the least attractive 30 per cent of a group of prospects generates an uplift in expected value of 125 per cent. Screening out the least attractive 50 per cent yields a 200 per cent uplift.
Meeting consumer needs with primary adviceA functioning primary advice process would involve four main steps:
l Gather information about the consumer and their needs.
l Run suitability tests and identify solutions.
l Explain the solution to the consumer in terms they can understand.
l Facilitate the transaction.
In the case of investment products, the purchase will be of a simple tax wrapper containing a packaged investment. The product will have the characteristics of a commodity, enabling the supplier of primary advice to concentrate on selecting the right type of product and ensuring the customer is comfortable with the purchase, rather than concentrating on selecting between different providers.
We believe successful primary advice models will share three characteristics. The first is a high degree of automation and process control. This will be needed to protect consumers and suppliers. The process puts clear boundaries round the scope of the service, helps to navigate the customer to the right decision and supports the delivery of the same outcome in identical situations.
Given the reliance on process and systems, many of the components are already available, such as customer needs and risk assessment tools, product selection software and straight-through processing. Successful primary advice models will combine these tools to create an engaging customer-buying experience and help to control risks and cost of sale for suppliers.
The second winning characteristic will be to recognise that systems and processes are not sufficient. Customer engagement and clear communication will be vitally important and high quality sales and interpersonal skills will be needed if primary advice is to reach its potential.
Our sales process and business reviews tell us that creating customer engagement and understanding – one of the best risk management tools of all – remains a real challenge for suppliers.
High throughput customer acquisition methods such as bancassurance and perhaps worksite marketing will be best positioned to offset the cost of delivery platforms. However, we can envisage cases where primary advice platforms could be made available to smaller-scale distributors on a rental basis.
Primary advice can offer a workable solution to a fundamental flaw in our industry – its inability to cost-effectively serve the needs of a high proportion of its target market.