The short-term approach taken by many advisers will only change through increased work efficiency, says Ben Goss. But new business models can enable advisers to pull through hard times
That financial advisers in the insurance sector are facing some of the toughest market conditions of recent times is underlined on an almost daily basis with the publication of new economic data. Recent mortgage approval figures from the British Bankers' Association (BBA) provide such a marker. The BBA announced that August's mortgage approvals had reached record lows, down to 21,086 a month, a 64% reduction on approvals from a year ago. For advisers, these conditions throw up a unique set of challenges, not least of which is how to meet changing customer needs and adapt existing business models. The distribution sector needs to find new ways of increasing productivity and discover how to take advantage of the alternative opportunities available in a downturn.
The current commission based model will not help advisers stay profitable during a downturn. This model has the knock on effect of leading advisers to focus more on new customer wins and 'immediate' business growth is seen to be more attractive and profitable than retained work. With advisers focused on the short-term offer, customers have tended to turn over relatively quickly and a high rate of churn has come to dominate the industry. This trend in a downturn, when competition is intensified for fewer, more cautious customers, means advisers are vulnerable.
Live long and prosper
A model that leads advisers to focus on the short term also fails to address the opportunity created by the UK's changing demographic. The 'greying' of the population means for the first time we have more pensioners than children. Overall we are becoming wealthier and healthier and, as a result, our financial lives are becoming more complex than ever before.
For advisers to weather the storm, and indeed benefit from new opportunities these changes present, the business model must develop. This can only be achieved by addressing three fundamental challenges: distributor productivity and compliance; developing profitable, long-term end-to-end customer relationships; and reducing the cost of advice and sales in the mass market.
The first challenge is how to transform the process for delivering adviser sales so that compliance standards are maintained but are less time consuming, more streamlined and more productive. The root cause of inefficiency in the current advised distribution process is the heavily manual and fragmented approach most distributors take. Research from Distribution Technology has shown that an individual sale can take between five and 10 hours of adviser time and will require the use of between five and 10 different pieces of software during this time. According to Distribution Technology's Adviser Survey 2008: "Up to 67% of the advice delivery time is spent in the office with, most often, advisers having to re-key in data rather than being able to be out, meeting and establishing relationships with customers."
This process needs to change for productivity to improve. One way of achieving this is to implement a technology solution at the point of sale and then 'straight through' processes to streamline the interaction between adviser and customer. This helps at every stage from the gathering and processing of data to needs analysis and fund selection, to completing application forms. As well as making each customer interaction more productive by reducing the need to re-key in data or repeat questions, software will also significantly improve the advisers' ability to comply with complex and quickly changing regulation.
Visible results
The potential impact of improved adviser productivity on sector capacity is huge. The Adviser Survey 2008 shows firms that have implemented a form of technology to streamline end-to-end work practices have seen an average increase of 16% in the number of cases they were able to process. If rolled out across the sector, this could mean one million potential new customers a year.
It is fundamental that advisers meet the needs of a changing demographic by developing and maintaining profitable, long-term customer relationships which will ensure the industry's long-term success. This is the industry's second challenge and requires the currently prohibitive costs of customer servicing to be reduced without compromising the quality of advice given. This issue is considered in the FSA's Retail Distribution Review (RDR) which is expected to require a change in standards of advice and service for both holistic planning and focused advice.
Technology will play a key role in helping advisers meet this challenge. This is because it will improve customer management, help maintain consistency of advice and reduce the 'cost to serve' each customer by advisers being able to use software tools that make it easier to move seamlessly between face-to-face, telephone and remote interaction. This ability to engage across a variety of channels will be vital for advisers to meet customers' needs in the future.
The final challenge advisers face is how to increase sales to the mass market. One of the key trends in how the UK population is changing is that we are becoming wealthier and more financially sophisticated. At the moment, it is difficult for advisers to tap into the opportunity of a wealthier mass market because of the cost of delivering advice. This has led to a widening advice gap especially in the delivery of financial advice to households in the £25,000 to £50,000 income bracket who are significantly underserved.
There is no single answer for how to meet this need but improving the efficiency of customer-adviser interaction is crucial. One means of doing this is to encourage customers to use online tools such as LV='s financial health check. This allows customers to progress through a simple questionnaire that helps them assess their financial priorities and generate a snapshot of their finances. The simple analysis helps them to direct conversations with advisers. While advice cannot be given based on online questionnaires, they are more likely to improve the interaction with an adviser as customers will already be aware of their financial needs and the range of products available.
Fresh thinking
It is clear that as economic conditions worsen, advisers will face tougher trading conditions and greater competition. A new direction is required so that advisers, particularly in the insurance industry, are able to overcome customer turnover and take advantage of the opportunities presented by the changing structure and needs of the population. Technology offers one solution to the three challenges confronting the industry of providing the means to weather the current storm and profit from a wealthier, more sophisticated market in the medium to long term.
- Ben Goss is chief executive officer of Distribution Technology.
