The road to plenty?

By virtue of their role, the heads of dealer groups have access to a unique view of the financial services landscape, especially the area relating to financial planning and product distribution.

As the previous chief executive of RetireInvest, Mark Spiers has come away from his time in the group with industry insights and says a number of areas that have been developing will continue to expand and dominate the industry’s awareness throughout the year.

High at the top of this list is industry consolidation with Spiers tipping an unprecedented level from February this year and which is set to further change the landscape of the financial planning industry.

He says a scramble to acquire or forge joint ventures with suitable partners will gain significant momentum in the second quarter of this year.

“It will happen with large corporates and institutions with mid-tier and smaller players and it will be by fund managers, research houses, technology providers and wrap/product providers,” Spiers says.

The consolidation will be part of corporate players’ commitment to key parts of the value chain, whether that be manufacturing, administration, distribution or all of them.

This will mean many will outsource key components of their business as organisations decide to channel their energies to core competencies. For some, core competencies will come from marrying third parties and outsourcing arrangements with companies through equity stakes.

In making these decisions, corporate players will need to review their existing business models in an effort to protect and grow existing revenue streams, or to diversify and gain alternative revenue streams.

“The challenges ahead are for companies to reduce their cost base and leverage existing infrastructure to become lower cost operators and improve the speed to market of product, service, advice and support,” Spier says.

To do so, some organisations will aggressively look to purchase and attract key teams in critical areas such as investment or distribution management.

“This is an effective way of picking the best parts from the industry that are required rather than buying whole businesses and being suffocated by significant integration and implementation activity,” he says.

With market merger, acquisition and joint venture activity expected to be high, Spiers says this will only serve to increase the already significant gap between top and mid-tier players within the distribution end of the industry. He says banks are likely to be the winners of this activity.

“Commitment to wealth management and increasing penetration of customer bases through sophisticated customer relationship management will enable the generation of increased leads to be serviced by growing numbers of salaried advisers,” Spiers says.

However, while banks have great reach in the market, other players are capitalising on their lack of customer penetration in the area of wealth management, but Spiers says this will change.

Full and semi-retirement by a significant number of experienced and successful financial planners prior to July 1 will place a number of good quality practices on the market.

Exit strategies will either involve a complete exit prior to July 1, or effect the sale of the practice and stay on in a limited capacity to successfully transfer the business to the new owners.

However, while many planners are looking at selling their business or re-engineering it for the new regime under the Financial Services Reform (FSR) Act, according to Spiers, the market will see innovative new entrants and models developing in the mid to lower tiers.

“Rather than competing in a dramatically converged market space, they will compete through attracting or challenging the status quo in the market, making and lending products and services, challenging and changing existing models,” he says.

Spiers says this will be a refreshing and distinctive culture of businesses that will be both inwardly cooperative and outwardly competitive.

And as there is no perfect model, there will be the opportunity for a new business model to take the best attributes of an institutional business and combine them with those of an e-business channel, a niche/boutique business and the aggregation/consolidation model.

“A refreshing customer-centric approach, taking the investor high ground on the back of rising consumerism,” Spiers says.

The franchise model, not based around brand but around the brand value proposition, will become popular as the huge social and demographic changes expected over the next 20 years sets in.

“E-business will be a critical success factor to underpin seamless client support, service and delivery whilst managing the business in a cost efficient manner,” Spiers says.

Yet much of this will happen in an environment of growing consumerism, where those who purchase financial products will seek the best product and service rather than take for granted that their planner is providing these.

Driven initially by media focus on fees and returns, Spiers says wrap and master trust providers will become a distinct area of focus in an environment of single-digit returns, poor service delivery and high error rates.

Advisers will be more vocal as clients become dissatisfied with the benefits they are receiving for the price they are paying.

There will be the emergence of a new middleman, where clients’ wishes are delivered via e-business and advisers will operate on an already agreed upon fee and service basis.

This model will be particularly attractive to investors who have had a financial plan done for them and have not regularly revised their portfolio and investment strategy.

Driving this need will be the large numbers of people who are unsure how to find a financial planner, or know how but do not understand the recommendations they have been given.

For Spiers, the people who are searching represent a number of untapped markets, and small to medium-sized enterprises (SME) and women represent two stand-out segments for the financial planning market going forward.

Spiers says the SME segment is fundamentally relationship driven with a high need for integrated and customised offerings, products, services and tools that will assist these businesses to operate more effectively.

“No one organisation owns this space, though many, the banks in particular, play here,” he says.

Marrying later and more financially independent, the female market presents another opportunity.

“Women have a high loyalty factor as clients and are very strong referral providers,” Spiers says.

While women recognise that they can learn, men more often than not think they can do it themselves and are bottom line driven.