Two fundamental errors in current thinking could result in dire consequences for the financial services industry.
One is a relatively new mistake. The second is a classic triumph of faint hope over experience and has been made repeatedly in the past.
The first is to believe that cheaper and simpler products will close the savings gap.
Only a seismic shift in consumer attitudes (“holiday now or jam tomorrow?”) will achieve this – cheaper products will not.
The second is the massive sums life offices that are investing in unproven and/or loss-making IFAs. Buying into profits at reasonable cost – rather than distribution at any cost – has clearly gone by the board. Again.
Innovative, diversified, high-quality IFAs producing real profits from clever business models do exist. They will invariably be smaller, however, and will be overlooked in the scramble for critical mass and distribution power.
Providers are looking in all the wrong places – sustained cases of big being beautiful among IFAs are strikingly rare.
Recently we read that Misys may float at an asking price of up to £100,000 per registered individual – who deliver profits of less than £3,000 per head.
With future profit margins being squeezed by the same life offices that will form an orderly queue to invest, this looks an inspired deal.
In the same week, Ken Davy opined that the days of the network are past.
If the founding father is right, then yet another costly pounding awaits policyholders.
The victims of both mistakes will be the entire financial services industry and, by extension, the investing public.
A few winners will console themselves with proceeds of shares sold before their own bubbles burst – or with a knighthood.
Ken Davy has banked the first and maybe merits the second for being one of the few with no axe to grind prepared to challenge a popular bandwagon with an unwelcome reality check.