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22 May 2013
While everybody has been watching the machinations of regulatory reform over the past year, a turf war has broken out in the world of financial services product distribution.
The causes and implications of that turf war should be understood by general insurance brokers, who further down the track are quite likely to find themselves experiencing many of the pressures – and opportunities – their counterparts in financial services are experiencing right now.
It’s not unusual for general insurance companies to own intermediary businesses – CGU, Suncorp and QBE are significant employers of authorised representatives, for example – and ownership of brokerages by insurers is also common in the UK market.
“Tied” intermediaries are strategic weapons in the insurers’ war for the most efficient and economical distribution of their products. Exactly the same is true in financial services, where advisers are increasingly being seen as key to the distribution of life insurance and other risk products.
Where there is a need for scale and sales teams, there’s also going to be consolidation.
There are other factors at play in financial services, of course, but they’re not unique. The financial services reforms a decade ago drove a wave of retirements and business consolidation in general insurance intermediary businesses.
The latest round of regulatory reforms have caused many financial services advisers to think about their future careers and the cost of running their own businesses.
And the global downturn has forced those advisers who used to rely on just investment advice for their income to look at other areas of financial services such as life insurance.
Meanwhile, behind the scenes, the big institutions have been gearing up to play a bigger role in distributing financial services products. They have already snapped up dealer groups such as Count, DKN and Plan B.
Distribution is king again, and as a result the adviser has become a much sought-after creature.
Forte Asset Solutions MD Stephen Prendeville says the face of distribution has changed, with the institutions now controlling 90% of product sales.
“There is significant competition between the institutions to acquire advisers and their books,” he told insuranceNEWS.com.au.
“They are also buying books to feed their internal distribution teams.”
Mr Prendeville says one institution has six people in Victoria dedicated to finding books of business to buy.
“That shows how competitive it has become,” he said. “I receive one or two calls a day from institutions asking if I have any books for sale.”
Life insurance books are of particular interest, as the life sector is now seen as delivering long-term positive growth.
“Life books are seen as being robust with significant potential for revenue, but the problem is the books never come on the open market,” he said. “The institutions are buying them before they are offered for sale.”
As more advisers become tied to an institution, could this restrict distribution for insurers?
Historically, life advisers have been relatively free agents, recommending a variety of products from different insurers.
There has always been the concept of one product does not fit all.
Asteron EGM Jordan Hawke says the big end of town is looking to build critical mass in distribution, but that does not detract from the fact that clients have different needs when it comes to life insurance.
“The adviser’s role is to define the risk and then find the right product that acts in the best interest of the client,” he told insuranceNEWS.com.au
“This means even the tied adviser will still need a range of products to offer to the client.”
Mr Hawke says insurers such as Suncorp-owned Asteron will continue to have relationships with the institutions as there will always be demand for a range of products on their approved lists.
“We still get support from dealer groups that are owned by the big institutions,” he said. “As long as we offer a good proposition with support, there will still be the opportunity to work with these advisers.”
The latest moves to tie advisers to big institutions is not new as life companies such as National Mutual, AMP and Prudential used this model for many years.
Mr Prendeville admits the recent move by the institutions is very reminiscent of the previous tied life agent regimes.
“At present the independent adviser is in the minority, but the tough trading conditions and regulatory reform is driving them to the institutions,” he said.
“Consolidation is a result of advisers seeking a safe port in the storm and a large institutional dealer group will meet that need in the current economic climate.”
Mr Hawke does not see the complete demise of independent advisers. He says there will always be a demand for someone offering a competing alternative to the institutions.
“While the big end of town can offer leverage opportunities to the adviser from their large client bases, there will still be plenty of opportunities for independent advisers,” he said.
Mr Prendeville says if history repeats itself, advisers will tire of being part of a big organisation and want to start running their own dealer groups again.
But this is unlikely to happen in the short term as advisers struggle with the next 12 months of regulatory mayhem and a global economy that is stubbornly refusing to improve.
Brokers would be wise to consider whether what’s happening to intermediaries on the other side of the fence is really so different that it couldn’t happen in general insurance.
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