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The generation game

While the FSA&#39s proposals may not seem immediately attractive to

IFAs, this particular cloud may yet have a silver lining. FSA

chairman Howard Davies said: “Our aim is to secure long-term

improvements for consumers through greater choice in the financial

products available to them.”

The current interpretation of “choice” is that it refers primarily to

the sales channel and through that the brands and products available.

However, there is another interpretation which I believe has so far

been missed.

Current financial services products fall into clear ranges in terms

of design and function and over the years the number of products and

ranges has diminished markedly.

With a few recent exceptions, gone are the specialist products, those

catering for niche markets. Instead, for the average UK consumer, the

industry offers a bland, formulaic and narrow product range, based

around increasingly common design platforms.

Isas and stakeholders may be simple (if not necessarily profitable)

to manufacture, but they offer a very limited and prescriptive choice

to the consumer.

The product itself may be simple to understand and to maintain and

may even be value for money but the proposition to the customer

beyond that is very limited.

At best, the proposition is the expectation of something bigger to

come, usually at a distant point in the future. At worst, it is a

growing feeling that investment and ins-urance is a painful and exp-

ensive experience.

This latter point has been highlighted in the Office of Fair

Trading&#39s annual report. The current report shows that while the UK

average number of complaints for “sub-standard service” reduced by 8

per cent year on year, those for financial services not only

increased but did so by a whopping 22 per cent.

So, in referring to choice, Howard Davies is referring not just to

the product itself, but, more important, to the proposition that it

offers to the consumer.

The plain fact is that the industry&#39s products are seen as necessary

and functional, a need-to-have, not a must-have. While that message

may have been acceptable yesterday, it is no longer acceptable today.

Yesterday&#39s audience appreciated the need to be thrifty and to build

for tomorrow. Today&#39s audience live for today. This audience shuns

long-term financial commitments and their savings tend to be

short-term and variable.

They view jobs as projects, from which they will move on when the

project finishes or ceases to be interesting and there is an

increasing move towards temporary contracts or consultancy.

That means less opportunity for regular savings, particularly pension

contributions. As interests naturally change, so do the type of jobs

they seek and, as they may develop several careers within their

lifetime, jobs are interspersed with substantial study breaks to

become equipped.

Cheaper travel, particularly by air, means they travel further,

longer and more frequently than their forebears. As a result, this

new audience builds up fewer capital goods and marries far later.

The audience of today has a need for savings and insurance that is

dramatically different to that of previous generations.

That change of need demands an entirely new and stronger set of

propositions in order to make them buy.

Financial services are competing for the pound in Mr Newaudience&#39s

pocket and that means competing against the huge and exciting range

of consumer goods on offer.

Such new propositions are few and far between. They are a particular

rarity in the life and pension market but they are creeping into

other areas of financial services.

One good example is a travel insurance policy from a specialist

affinity group, the Ski Club of Great Britain. Its winter cover

insurance is a radical departure from insurance policies of old.

Instead of trying to mould the audience to suit the natural

risk-aversion of the insurance markets, it starts by assuming that

all its members are going on holiday actively to seek risk.

It advertises the fact that, in addition to skiing and snowboarding,

its policy covers snowblading, off-piste skiing, heli-skiing,

recreational racing and snowmobiling, among others. Exactly the

activities that this new audience seeks.

This is not a proposition for the faint-hearted nor the politically

correct. It recognises a specific market need and goes out with all

guns blazing to meet it – the Jeremy Clarkson of insurance

propositions.

Building a successful customer proposition is not an easy task. It

requires a deep understanding of the market combined with an

imaginative approach to design.

But more than that, for the proposition to be commercially successful

and especially for it to be able to drive down rather than increase

inherent processing costs, it requires a unique combination of

process and people skills.

It is the lack of these skills within financial services, combined

with a very restrictive regulatory regime that has been the main

cause of proposition inertia.

Davies is proposing that the regulatory regime be relaxed. It is now

down to the financial services industry to respond by developing or

importing the required skills so that new and exciting propositions

can be quickly developed.

The FSA&#39s statement, while creating short-term headaches for IFAs,

may help them in the longer term by opening the doors to a new and

exciting range of products and services that the new consumer wants

to buy. If that happens, it might at long last herald a new era for

the financial services industry and for the UK consumer.

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