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See the future in a coffee cup

You can get a very good cappuccino from the Belgravia Coffee Bar. The place does not look much from the outside but Pier Luigi and Roberto, the two brothers who own it, are true wizards at the Gaggia machine.

Naturally enough, they have loyal customers who work in the nearby offices, myself included. But in the last couple of years, things have become more difficult for Pier Luigi and Roberto. Within 200 or 300 yards of their establishment, there are now branches of Starbucks, Pret and Costa Coffee. These new rivals are better located, so they pick up most of the passing trade. Even though none of them does such a good cappuccino, they do offer other benefits that the punters value – more comfortable seats and longer opening hours.

When new recruits to my company ask me for a recommendation, I still sing the praises of the Belgravia but not all take my advice and quite a few seem happier when they find there is a Starbucks or Costa within reach.

The outlook for Pier Luigi and Roberto is not brilliant. They can more or less count on their loyal customers – although I must admit, even speaking for myself, when I want a sandwich with my coffee I tend to go to Pret these days. Recruiting new customers is difficult. If they wanted to sell, I do not suppose they would get what they would have got a couple of years ago. If they want to carry on, it could gradually become a bit of a struggle.

What has happened to the Belgravia Coffee Bar is that it has come under pressure from powerful, well managed competitors with deep pockets and strong brands. Even though the competition cannot match the two brothers&#39 core skills at the Gaggia machine, they offer overall brand propositions – including elements such as sofas, sandwiches and so forth – which many customers seem to value more highly.

The interesting question for IFAs ploughing their way through this anecdote is whether, after CP121, the independent owner-managed IFA business will come under similarly threatening pressure.

In the financial services market, it is not exclusively an issue about polarisation, and whether or not we see significant proportions of AFAs and/or multi-tied advisers.

Depolarisation will generate new forces that may accelerate the pace of change. But there are plenty of signs already that the distribution of financial services is on its way to becoming a branded business, in which significant national players with more or less standardised offerings and positive awareness in the minds of their target groups compete fiercely for market share with small unbranded independents.

For one thing, some large, well resourced and brand-minded players were already making moves way back in the days when 121 was just the name of a mobile phone network.

The strategy behind the range of brands that currently includes Bradford & Bingley, The Marketplace, Charcol and Charcolonline remains pretty opaque, but it is clear that at least one of these names – and perhaps a couple – are earmarked for development as advice/retail brands on a national scale.

Bristol & West has been playing an interesting game, acquiring the Chase de Vere and Willis National IFA businesses as well as the Moneyextra website.

An interesting new retail entity is certain to emerge when the pieces of this jigsaw puzzle are fitted together.

The same goes for AMP, with Ample, Interactive Investor and Towry Law.

Elsewhere, Keith Carby, now firmly in charge at Inter-Alliance, can be counted upon to bring a brand-minded approach to the development of that business just as he did at what was then J Rothschild Assurance – the difference being that at JRA the name needed no external promo-tion in order to stand for some powerful and attractive brand values.

While the new-style distribution brands of organisations such as Egg and Virgin have so far focused on exe-cution-only business, there have been frequent rumours that both are contemplating extensions into face-to-face activity, with a physical high-street presence to counterbalance their remote phone and internet services.

In truth, when it comes to defining the emerging new “financial retail” category, it is arguably a mistake to imagine that face-to-face advice, or indeed regulated products, will be the central focus.

Charcol is, primarily, a face-to-face IFA business advising on regulated products, mainly mortgage-related. But if consumers know the business mainly from its marketing and communications activities, does it look all that different to them from, say, Royal & Sun Alliance&#39s MORE TH>N, which is a direct tied business selling largely unregulated products?

The fact is that big players with big ambitions are converging on this new financial retail space from many different directions – Charcol and Inter-Alliance from IFA business, MORE TH>N from direct insurance, MX and Ample from online portals, Egg and Virgin from the radical tendency.

Other kinds of organisation were showing a greater or lesser degree of interest in the territory before CP121 too – for example, organisations as diverse as US-based advisers such as Merrill Lynch, Schwab and Edward Jones which had grown out of a heritage in broking on the one hand, and the few remaining direct salesforces, such as Pearl&#39s and Royal London&#39s, with a heritage in industrial branch insurance on the other.

With so much convergence already in train, the new financial retail space was looking ripe for dramatic expansion before CP121. But there is no doubt that depolarisation will accelerate the pace of change still further, because it will bring at least three new forces to bear.

First and foremost, of course, it encourages investment by product providers and others into distributor businesses. Big providers, with big brands of their own, making big investments across the sector, will not even dream of managing their new portfolios of distributor businesses as separate cottage industries.

Consolidation will be the name of the game and much greater consistency will be the outcome – when it comes to processes, proposition, market positioning and, inevitably, brand.

Second, and almost as important, it puts even greater pressure on banks to sort out their advice-based propositions to more affluent consumers.

Leave aside, for today at least, the fascinating question of what they are going to do about the mass-market opportunity that the FSA is so keen for them to take.

In the higher-net-worth market, where the farcical dotcom-derived online wealth management services are now receding into unhappy memories, banks such as RBS NatWest, with Coutts, and Barclays, with Barclays Premier, are determined to create a new private banking model which represents something much more interesting than a suite of banking products with a financial services offering awkwardly and unsuccessfully bolted on to it.

And third, it would be foolish to dismiss the FSA&#39s opinion, expressed in CP121, that new kinds of distribution business, perhaps owned by new kinds of alliances between groups of product providers, may emerge from clean sheets of paper and, potentially, grow faster and more smoothly than existing or consolidating businesses struggling to overcome legacy attitudes and working practices.

Some of these developments may never happen, and others will be tried and fail. All will have to grapple with some fundamental problems – one being the fact that there are nothing like enough qualified and competent advisers to satisfy the demand.

But the truth is that rather like the final scenes in the film Zulu, the attacking force is so large that in the end a significant number are bound to get through.

None of this signifies a doomsday scenario for smaller independents any more than the coming of Starbucks signifies the end of the world for the Belgravia Coffee Bar. But it certainly provides some new and possibly rather uncomfortable things for them to think about – perhaps while sipping their next takeaway cappuccino.


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