At least one major insurer is eyeing a return to the face-to-face advice market as financial services giants rethink their distribution models.
The traditional direct salesforce was slashed across a host of high-street banks and life offices both pre- and post-RDR.
However, Santander last week reversed that trend when the bank confirmed it had begun recruiting investment advisers to service new customers.
Now Aviva is preparing a return to face-to-face protection advice with plans to launch its own network of advisers covering certain regions. Money Marketing understands the firm will pilot a new direct protection advice service over the next few months.
So, in the wake of the RDR, are household financial services brands about to provide the solution to the advice gap problem?
Money Marketing revealed last year that Aviva was scrapping its direct advice arm. Amid a round of cost-cutting, the firm cut the majority of its 120 field-based advisers and ended its bancassurance relationship with Coventry Building Society.
At the time it retained around 10 advisers to continue servicing existing clients but discontinued advice for new clients.
But the insurer is considering a return to the market, offering protection advice through a network of its own advisers.
Although the firm declined to comment on the plans, Money Marketing understands Aviva is planning to pilot a new direct advice service with its own network of protection advisers later this year.
It is understood the firm will write business using technology from provider Intelliflo. Former Sesame Bankhall chief executive George Higginson is believed to have worked with Aviva on the plans although is not expected to be involved in future.
An Aviva spokeswoman says: “We have been looking at how we can grow the protection market. There is a concern that there is a gap and under-insurance in the UK still exists. We are looking at various ways to close that gap and give families the kind of protection they need.”
Post-RDR, critics have raised concerns over a lack of advice available to the mass market.
A squeeze on the IFA sector, combined with insurers and banks withdrawing from advice, has left a gap at the lower end of the market.
Deloitte financial services partner Andrew Power says: “The main reason so many banks withdrew was the economics because they had to disclose the charge. Consumers were in many cases not prepared to pay that and the banks did not feel they could afford to do it any cheaper. The second reason is there was regulatory risk and therefore people withdrew from advice in total or from a certain segment of the market.”
He says although those fears have seen provision of advice for the mass-market shrink, firms will look to find ways to re-connect with those clients.
Money Marketing last week reported banks were looking to leverage platform technology to reach mass-market clients. Experts say it is one of a number of ways major financial services organisations are looking to bridge the advice gap.
Cazalet Consulting chief executive Ned Cazalet says: “You will definitely see more face-to-face and telephone advice. There are a few reasons for this. There are lots of closed pockets of business and orphan clients. In terms of value management, life companies are looking at how they keep hold of that business and their book value management. The other thing is it has been very tough in the protection market and volumes have been hit by the loss of bancassurance connections. The core bancassurance has been cut to ribbons.”
KPMG life insurance partner Andy Masters says providers face questions about how face-to-face can be delivered in the current regulatory environment.
He says: “Post-RDR, everyone is worrying about advice for the mass market so anything that tries to provide that is a good thing. But as a provider I’d be thinking about how I can do this while being completely clean from a regulatory perspective and also realise that I’m a business and not a charity because the economics will be challenging.”
Masters says where insurers look to grow or re-introduce their own advice staff, they will need to find a cost-effective distribution model.
“Accessibility to people providing advice is a big issue. If you are meeting people, where do you do that?
“Some of the providers already have a presence talking to savers in the workplace and encouraging additional contributions. It is possible they could have someone talking about individual protection as well.”
He says providers will look to use Skype calls and online guidance and advice where possible as a means of closing the advice gap cost-effectively.
Cazalet agrees insurers will balance online and telephone sales with face-to-face advice. He says: “Aviva is not the only one looking at expanding its protection business directly because the population is not over-endowed with life and income protection. So some of these providers may not quite go back to knocking on the door but they will look to use
online and TV advertising prompts to trigger Skype calls and face-to-face conversations.”
In several instances regulatory fines have influenced exits from mass-market advice. Lloyds Banking Group withdrew support for consumers with less than £100,000 to invest in 2012 although it continued to offer protection advice together with Scottish Widows.
In 2013, the FCA published details of the culture of Lloyds’ advice business, including automatic demotions for failing to meet targets, uncapped bonuses and one-off payments, one of which was a “grand in your hand” competition.
The regulator fined the firm £28m.Poor investment advice also saw Santander fined £12.4m in March after the firm withdrew from branch advice for new customers in March 2013.
Power says suitability and controls will be a major focus for any firm making a return to direct advice.
“The risks are around suitability and the product doing what it says on the tin and then the ongoing monitoring. Advice can be given and the market can then change and you need to know how you control for that,” he says.
Masters adds: “The regulatory risk is considerable, as is the commercial risk. In the old world of D2C you ended up with lots of inconsistent underwriting in a protection model because decisions were made out of local offices.”
Firms seeking direct distribution risk a hostile reaction from advisers.
Masters says some advisers may feel providers are stepping on their toes by growing their direct sales volumes. He says: “There is always some channel conflict. There are still a lot of advisers working on the same kind of model they did before the RDR and there will be some noise from them.”
Power says advisers and providers will increasingly find themselves competing for certain market segments. He says: “Ideally what people are looking for is three offerings – non-advised D2C, advice and something in between like guidance.
“The big institutions and some IFAs are looking to have all three so they can service all the different segments.”
Traditionally the industry has functioned around the simple mechanics of products and channels. Customers were either advised or non-advised, directly or via an intermediary. Effectively customers were “owned” under this system.
As such, provider systems, channel rules and, more importantly, organisational culture have been rooted under this mechanic. However, given today’s dynamic marketplace and in a post-RDR world, this approach will be challenging in the future.
The demographics and attitudes of today’s customers have changed and will continue to evolve. Customers are increasingly unwilling to pay or have no clear access to advice. They are inherently multi-channel savvy and well-informed as a result of the plethora of information that has been made available to them on the internet. Ultimately customers want to have the fluidity of being able to move between channels and indeed products.
This is presenting profound implications for providers as they need to put customer centricity at the heart of their organisation. However, this has to be embedded beyond their branding and marketing.
Providers need to build flexible propositions, underpinned by platforms that can be delivered with or without advice, directly or through partners. From the front-end, the key is to create a consistent experience across every channel, with the objective of engaging the customers, regardless of whether they are advised or non-advised, wherever they are in the sales cycle.
This must in turn be supported by technological infrastructure which will require investments in areas such as customer relationship management, data analytics and new advisory models.
But perhaps more importantly, the change requires firms to change their culture, genuinely embrace customer centricity and forge different relationships with channels within the partnership.
Andy Masters is life insurance partner at KPMG
Derbyshire Booth director Greg Heath
I am not convinved that a return to this model will be the right way to go. For it to work there will need to be a lot of careful thinking about how they reach clients. Door-to-door is not going to make a comeback but putting people in supermarkets might work. But we must do something to close the advice gap so anything that tries to do that should be welcomed.
Highclere Financal Services senior partner Alan Lakey
This must be a good thing. Protection is not bought widely enough in the UK and that is largely because of apathy. But when you have a face-to-face conversation with someone, it becomes much easier for them to understand the benefits. I view this as a win-win for everyone. If these institutions can get people started it is the building block of the financial plan and the more people are thinking about that the better it is for advisers.
The decline of face-to-face advice
Regulatory scrutiny and post-RDR cost-transparency were blamed for triggering an exodus from mass-market advice.
In March 2013, the FCA revealed a 44 per cent drop in bank adviser numbers since 2011. Lloyds closed its mass market advice offering in November 2012 while Santander stopped advising new clients shortly after the introduction of the RDR. HSBC stopped advising clients with less than £50k.
Life offices also shrank or withdrew from face-to-face advice. Last year, Axa announced it was ending its bancassurance tie-up with the Co-Op, Clydesdale and Yorkshire Banks. Aviva also withdrew its face-to-face offering, pulling staff from its bancassurance tie-up with Coventry Building Society.
Not every life company went the same way. Legal & General maintained a relationship with Nationwide although it only offers advice to clients with over £50k. Prudential has also maintained a direct advice service, which had 196 advisers at the close of 2013.