In the late 1980s there was a savings plan scheme that paid out 110 per cent of the first year’s premium to the introducing broker. So while the client was squirreling away savings during that initial year the reality was that not a penny of it went towards securing any financial future but had been paid up front in a nice lump sum to the introducer of the business. A friend of mine worked in the back office of a firm of independent financial advisers at that time and tells me that it was a standing joke that whoever went into the interview room whether they were rich or poor, tall or short, young or old it did not matter; they always came out having signed up for this scheme.
A lot has changed since then and the recent implementation of the Retail Distribution Review (RDR) sees the Financial Services Authority (FSA) taking firm control of the sector. The FSA now presides over what John Fox of Liberty SIPP calls ‘seismic changes within the Financial Services Sector’. As of the 1st January there can be no hidden remuneration or incentive for the broker and they must keep their relationships with clients transparent by charging fees for their professional services.
Customers may well be concerned at having to pay for what once seemed like free financial advice. But they are not alone. The scheme providers themselves are no longer allowed to encourage Independent Financial Advisers (IFAs) to promote their products with promises of healthy commissions. When faced with three products that are similar in all crucial respects, what will make the IFA opt for a particular policy? If, like the Co-op, Barclays and Lloyds, the IFA firms pay staff on the quality of their advice and customer satisfaction rather than sales, the policy providers will still have to distinguish themselves from the competition. In order to do this they will not only have to provide a convincing argument for the credibility of their policy, but will have to establish clear distinctive USP messages to IFAs so that they are able to make decisions based on their client’s individual requirements.
Companies like Scottish Widows, Legal and General, LVE, Zurich, Aviva and Friends Provident have high media profiles in their own right but much of the television and social media advertising promotes the financial supermarkets rather than providers or advisers.
Providers will now have to work harder and communicate more directly with their customers – many of whom will opt to do their own research and purchase products directly online, avoiding the IFA payment. The winners in this new post-RDR world, will be those businesses that understand the power of social media. They need to know where their existing customers are online and how best to engage with them.