2012 - A Year of Uncertainty?

Happy New Year to all our clients and candidates. 2011 proved to be positive for most of us as the Financial Services industry and the economy as a whole made further progress.

I think most us feel that 2012 will be a year of uncertainty.  Fears of problems in the Eurozone leading to double dip recession in the UK, coupled with the biggest change to the distribution of financial products in a quarter of a century means we have much to be wary of.

Client companies have indicated to us that 2012 will follow on from 2011 as a year of repositioning.

Part of this is hedging one’s bets, ensuring one’s company has hedged its bets by having a presence in most distribution channels, prepared to react and reposition according to market needs.  It is also about recognising the value of your existing customers and how to maximise that value.

For adviser firms, 2011 and the first part of 2012 are dominated by retraining and up-skilling their advisers to Level 4 qualifications.

Press comment from the major distributors indicates that they are well on the way to 100% of advisers holding Level 4 qualifications. Anecdotal evidence suggests that this may be a little optimistic.  In our experience, a lot of tied, and even IFA advisers have still not reached this standard and so there is considerable uncertainty in the market.  Whilst all the big companies have a plan, this seems to rely on first time passing of a number of exams for most advisers and there does not appear to be much contingency for re-takes. This may be the way that major companies choose to thin out their wealth sales forces. It is also noticeable that many of the big banks appear to be focusing a large part of their efforts on non-regulated business such as protection and mortgages where commission can still be charged and there will easier pickings than justifying fees to customers who have simple financial advice requirements.

Within Intermediary sales, i.e. the Life companies, most of the downsizing seems to have finished.

Over the last couple of years a lot of cost efficiency drives have seemed to be a euphemism for staff reduction drives. Increasingly, the focus appears to be on shareholder value and ultimately return on investment. As a result, we will continue to see restructures earning cost efficiencies but I don’t think we’ll see much further reduction in numbers of highly skilled sales staff. This doesn’t, however, mean they will not be re-shaped. Ultimately, the number of intermediary sales professionals required depends on the size of the distributor market and how they choose to deal. As IFA’s become increasingly fee based, they value their time more and in many cases want to utilise a strict method of dealing with the product providers. Once the cost of commission is taken out of products and removed to a ‘factory gate’ pricing model, providers are increasingly seeking to influence adviser choice through provision of ‘add-ons’ and technical services which replaces enhanced commission levels offered previously.

Increasingly, Life Offices are offering taxation, trust and other technical expertise to advisers as a way of differentiating their service. However, whereas these are presently offered  “free”, in future the product providers will be measuring the financial returns these add-ons give them, so we may see the introduction of tiered technical and other services based on level of support so a supporting IFA will have priority over a lesser supporter. If an adviser never supports a Life Office, they may well find their technical queries at the bottom of the provider’s in-tray! Even those employees without a sales target may well find themselves more accountable in future.

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