We are not in the business of just surviving. At Axa, we are committed to building a business which both embraces the changes and thrives in the new world being ushered in by stakeholder pensions.
To achieve that aim, we are making big changes to our business, not just in terms of our internal systems and processes but also in the way we do business with intermediaries and customers.
It is important to consider the key drivers affecting us and the industry.
First, there is the legislation itself that has introduced a charge-capped “simple” product and compelled most employers to make one available to employees. Second, the industry regulators are constructing rules that will ensure stakeholder must be considered as part of any pension advice and there are serious proposals to relax polarisation so every organisation can have access to a stakeholder product.
Third, the ongoing technological revolution is reaching more and more people and providing new channels of distribution and easy access to policy information at much lower costs.
Finally, the reality of the 1 per cent world means everyone in the value chain has to get used to lower margins and find more cost-effective ways of developing, marketing, advising, selling, investing and administering pensions.
The market has become highly competitive with providers, IFAs and other financial services companies intent on securing business through exclusive deals on the best possible terms. The battleground seems to be centred on price and commission (inevitably), technology and service, marketing support, financial strength and commitment to the market.
Most of these things are pretty tangible. But commitment to the market is difficult to gauge. Why is commitment important? It is the intangible nature of commitment that allows this concept to be used very loosely these days but it is vitally important to establish what companies mean by this.
If we are to add value in the 1 per cent world, we have to do things very differently. For providers and IFAs, this means working in partnership as never before. It means working together to take cost out of sales and servicing processes.
At the same time, we must strive to increase productivity in terms of take-up and premium size and focus on total value rather than unit price. To do this requires close and honest relationships and that needs commitment on both sides.
What are providers looking for? All providers are very concerned about low charges leading to long periods before a contract breaks even. This means providers need to be more sure than ever about the type of business they get. They will certainly be more focused on understanding which IFA partners will write persistent high-volume, high-value business for the foreseeable future.
Providers have always preferred this kind of business, the difference now is that they need it.
Of equal significance is the question of remuneration for advice. There are large sections of the market where initial commission still prevails and, although initial commission on stakeholder-type pensions has more than halved over the last 12 months, no committed provider will withdraw completely from this area – yet. However, initial commission for 1 per cent products creates a financial strain for providers which needs financing in the short term and compounds the profitability and persistency issues in the long term.
For this reason, there can be no doubt that IFAs who write nil or fund-based commission business or who are actively managing their businesses over to these types of remuneration will find providers competing increasingly for their business.
What are IFAs looking for? Without wishing to second guess IFAs, we believe our day-to-day involvement with them gives us a good understanding of the issues they face. In the short term, those IFAs who recognise the need to change their businesses want to be reassured that providers will support them through the transition.
This support takes a number of forms. Primarily it is financial and includes, in many cases, the need to continue with initial commission to maintain cash flow. However, there are other important areas where providers can and should help enhance the value of business to IFAs given the lower levels of commission that prevail. These include:
Marketing support – expertise and techniques for remote marketing and selling which can reduce prospecting costs and provide a deeper insight into customer behaviour.
Sales support – without contravening the indirect-benefit rules, there are parts of the sales process that product providers can manage to improve initial take-up and future persistency.
Technology – programs that will automatically collect data for the pre-population of quotes, applications and mainframe records, as well as manage contribution collection.
In the long term, just as IFAs will need to change their businesses, so will providers. It is essential that providers can convince potential IFA partners that they have a clear, deliverable strategy to move to a cost base that is sustainable in the capped charges world without a reduction in service quality, while at the same time investing for the growth in revenues required to gain the necessary scale.
As part of a global group, Axa in the UK has the strength and commitment to work in this way with its existing partners and to develop new and stronger relationships where both sides are determined to deliver benefits throughout the whole value chain.
With this kind of commitment on both sides, IFA and provider partners can, I believe, allow themselves to consider thriving in the future, not just surviving the present.