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MP65177

MAPS INDEPENDENT INTERMEDIARIES - THE LIFE AND PENSIONS MARKET DECEMBER 1997

Overview

Table of Contents

Executive Summary

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EXECUTIVE SUMMARY

The life and pensions industry is gradually emerging from what has been a difficult time in recent years. The effects of the recession of the late 1980s and early 1990s and the depressed housing market have had a lasting depressive affect on the industry from which it is only just emerging.

Another challenge faced by the industry is how to promote itself. Traditionally there has been little advertising, branding or promotion connected with sales but this will doubtless change. One reason for this is the bad publicity the pension industry has attracted as a result of the problems relating to the inappropriate selling of personal pensions in the late 1980s when the government introduced portable pension plans. Inexperienced and inadequately trained sales people sold pensions to people who never should have come out of their occupational schemes. If this and the attendant publicity was not bad enough, it has taken a long time for many of the retailers, both insurers and intermediaries, to review the problem cases and make restitution where appropriate. This has extended a period of bad publicity which the industry could well do without.

In the face of these problems, the independent financial advisers are quickly learning new marketing and training skills and promoting themselves in a way which would have been unheard of only a few years ago.

Intermediaries are also under pressure from competing sales channels, both established and new.

Company representatives and tied agents have the support of the product providers, they are dominant in terms of numbers but are limited in the scope of what they can sell. Independent intermediaries seem to be holding their own against this channel.

Bancassurers have long been the focus of concern in the industry. Banks and building societies have close links with their clients and may well be the first stop for customers seeking financial advice. Many of these now have their own product provider and the strength of this channel is of concern to many IFAs.

Retailassurers are described in one broker periodical as ‘The new bogeyman’. Notable among the companies entering the financial services market are companies such as Virgin and Marks and Spencer which have a strong brand image and are respected by their potential customers. Supermarkets are also entering the financial services market and they bring a new approach to the selling of financial products. Loyalty cards provide the companies with information about their customers which enable them to use marketing techniques to target products accurately. They are located in convenient locations and customers visit them regularly in a way that independent intermediaries could only dream of! These new entrants may well open up the market by selling low cost high volume products in a way which has not been attempted previously.

Direct writers have not made a significant impact on this market and are not taking market sector from independent intermediaries. There has been a great deal of publicity connected with their impact on the personal lines market but regulatory requirements make investment products more difficult to sell in this way. There also appears to be reticence on the part of the investor to use this channel.

Networks developed at the end of the 1970s to provide support for brokers but as the Financial Services Act had an impact upon the market they have developed and become increasingly important.

The network company provides an umbrella to a number of independent financial advisers offering marketing, training, administration and compliance help. There is also a certain strength to be gained from being part of a larger body. It is compliance which is seen as the most important feature by most of the member companies and is the feature which seems to most tempt IFAs to join up.

The downside to network membership is the surrender of total independence. Whilst many networks permit intermediaries to retain their name, premises and overall image, some require branding of company literature with a network logo and frequent standard forms and software systems must be used. In some cases, intermediaries are also given a best advice panel from which to select the product best-suited to their client. For many independents this is a sticking point. They feel that the disadvantages of forgoing full independence makes the benefits of joining pale into insignificance.

Compliance and the onus of regulation has been a significant feature in the shaping of the IFA market. Regulation can come from membership of the Personal Investment Authority or, for those intermediaries who obtain less than 49 percent of their business from regulated investment business, through the Insurance Brokers Registration Council (IBRC) - a recognised professional body.

Trade bodies, of which there are many, are important in the market. However many of these are in disagreement with each other and the trade press is full of some very public squabbles. Some intermediaries feel that the more trade bodies there are, the more pressure and publicity the industry will get. However, others feel that this in-fighting is very negative and what is required is a central body which would effectively promote the professionalism of the industry and lobby on its behalf.

Market Assessment commissioned National Opinion Poll (NOP) to undertake original research into customer attitudes regarding IFAs.

The research showed a certain amount of confusion among the public especially regarding the image and professionalism of intermediaries. Customers have quite well developed ideas about their personal preferences regarding financial retailing, they want independent advice and good service. But when it comes to matching that with their image of intermediaries there is a lack of confidence in the professionalism and independence of the sales channel. Features such as convenience and price proved less important than might have been expected as these are two of the target features of the new entrants to the market.

Further evidence from intermediaries indicates that they consider personal recommendation to be very important to their clients. However the research does not bear this out. Intermediaries may be relying too much on this and perhaps should be focusing on improved promotion techniques.

The strengths, weaknesses, opportunities and threats to the IFA market are examined. There are many challenges ahead in the form of competitors internally and regulatory, image and economic factors externally. Lack of marketing and promotional skills are also hampering the development of the market. However there are also several key features about the intermediary channel which provide a good base from which to fight back.

Independence is seen by the public as being important and is the feature IFAs should most capitalise on. This may well be achieved in future by a branding such as is being used by IFA Promotion. They also have a personal relationship with their clients and can use this to develop a loyal client base. The use of niche and affinity group marketing may also enable them to develop further. Technology cannot be ignored - those who can streamline the way in which product sales are made and administered will have more time and resources in the future. Already there is an electronic pension product and this may well be the face of future.

IFAs need to move forward and develop new skills with which to defend and develop their market position. Their biggest challenges are to promote themselves and to improve their rather jaded image. The poor image is certainly not entirely deserved but the public need education about the positive aspects of this distribution channel.

IFAs occupy a strong position in the market and appear to be maintaining or increasing market share in the face of some strong opposition and challenging circumstances. Their strengths in the high net worth market selling complex products, need to be maintained whilst new avenues are explored. The biggest danger to the IFA channel is its reticence as a whole to move and change with the markets. Those firms who have done so have a healthy future, but those who are unable or unwilling may find themselves being squeezed out.

Text © 1997 MAPS

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