All brokerages, no matter what the commodity, service or product being broked, have similarities. They all have periods when the gravy train rolls and they all get their comeuppance.Let us reflect on two brokerages, one which is doing well – estate agencies – and another which is dead on its feet – travel agencies. To be successful as a brokerage, you need a certain set of circumstances. Probably for most of the second half of the 20th Century, travel agencies did extremely well. The improving wealth of the nation, especially from the early 1980s, revealed a new group of potential travellers. Then it all went wrong. Once you have been abroad, you know you do not need the crazy bus transfers from the airport to the hotel (there is always a line of taxis waiting). You do not need a holiday courier. With the advent of budget airlines, people booked their accom-modation and flights on the internet and jumped in a taxi or hired a car at the airport. The estate agency, in comparison, has been riding the crest of a wave. More people have been buying houses, second homes and buy to let and the value of the product being sold has increased – a perfect scenario for a brokerage working on value-related commission. The increased wealth of the nation benefited our industry in similar ways. More people wanted protection and investment advice, they had more to invest and insured for bigger sums, meaning that commission increased proportionately. This was a gravy train which endured until the start of this century, with one or two hiccups. Several things have destroyed this gravy train and anyone waiting for it to return will be disturbed that both the track on which it ran and the stations at which it called have also been destroyed. The first crack in the track was the disclosure of commission. No longer will the unlucky client who decides to proceed pay for the abortive work of the ones who do not. “£3,000 for two hours work,” they will cry as they witness the commission you are taking on a £50,000 bond – “no way”. The case is even worse in stockbroking. In the past, a stockbroker could rely on more new clients, bigger deals and commission based on the size of the deal whereas most stockbrokers today charge a flat fee and the only way they can increase their income is either by increasing that flat fee (almost impossible) or attracting more clients and the only way they will do that is to reduce this fee further. There has also been a serious discrediting of the products and investments sold. People no longer buy whole-of-life plans. Neither do they buy endowment policies for investment purposes. With-profits, which had sheltered them from stockmarket falls, has proved to be flawed. The other important factor in the current decline of our industry is that the population only thinks of one investment – property. The products we provide are tarnished, as are the people providing them, while remuneration from selling them has declined and there is serious competition from Britain’s most loved “investment” – property – despite a bad 12 months. All the conditions for a prosperous broking environment are in reverse, that is, a reducing amount to invest, a reducing number of clients and a reduced level of remuneration, but costs are increasing, specifically employees’ salaries. At the very pinnacle of this equation is stockbroking but it filters right through our industry. Stockbrokers are placing fewer deals on a fixed-price dealing fee but having to compete with the (overpaid) public sector in the salary market. Profits can only decline. One does not have to look too far back in history to find agencies which have completely disappeared or are in their last throes. The internet has had a significant part to play. Fifty years ago, you walked into a local insurance brokerage to insure your house and your car. Today, you buy direct. Similarly, you would buy airline tickets through a travel agent – the budget airlines will sell you them directly and charge you less if you book on the internet. Forty years ago, most building society agencies were held within accountants’ or solicitors’ offices. They lost those agencies years ago when building societies moved on the high street. Even the motor industry has changed dramatically. A main Ford dealer used to get 19 per cent for supplying a Ford. Today, motor dealers make nothing or very little out of selling a new car. They make their money out of servicing it and this is the key. It does not matter how much money life companies throw at national brokerages to keep them afloat. They are only delaying the inevitable. There is no full indemnity brokerage that will survive the brave new world. The key and the lesson we must all learn from is the motor industry. We will only survive if we service those clients. It is service charges that we should be looking for. There is a lesson to learn from stockbrokers. The smart ones 20 years ago saw the writing on the wall for retail commission broking and moved into portfolio management. The only way that our industry will survive is if we can get small ongoing fees from our clients. We must realise that we cannot exist in an environment of reducing initial commission, reduced numbers of clients and reduced amounts for investment when we are competing for staff with a bloated, overpaid, over-pensioned public sector. They will not get efficient but by hell we will have to.
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