by Tony Vidler
Often it seems there is little difference between product suppliers in financial services, with one fund manager looking similar to other fund managers, and one life insurer offering essentially the same products as other life insurers…how do you decide which product supplier is right to work more closely with?
When it comes to assessing institutional partners I think it is helpful to consider them from the perspective of how well they compete with each other in just 5 key areas.
A standout product supplier- or product manufacturer if you prefer – will ideally lead the market in at least 2 of the 5, and have to be at least “market average” in the others – they can’t lag or seriously underperform in any of them. Getting any one of them horribly wrong can eliminate them as a supplier choice for an advisory firm, but they definitely do not have to be a market leader in all 5 key competitive areas.
The calibre of the people running the supplier company matter enormously, as do the personnel within key product development and delivery departments and within ther customer service functions. Technical knowledge, strategic capability, operational efficiency, investment decisions, systems adoption….all of the things which a business makes decisions upon which impact upon its efficiency, sustainability and service levels are made by the people.
The quality of a firms people alone will often determine its ability to compete successfully. The best products, pricing and performance tend to not matter to the market if the people offering them are unreliable, untrustworthy, arrogant, dismissive, patronising or anything else which demonstrates behaviour that customers or distributors abhor. Good people make a great business, but bad people can stop a supplier getting business.
So the talent of the firm is a key competitive point. It is not simply the individual talent though: the culture which is created with the talent is a critical part of getting the “people” part right. Culture shifts and evolves either of its own accord, or as a result of decisions made by leaders of the organisation. The culture can be a positive or destructive force in itself….it can be the thing that enables an organisation to beat competitors, or one which hands market share to them.
How easy is it to place business with them? A simple question perhaps, but one which many institutions seem to overlook (or at least downplay the importance of) as a point of competitive difference. Consumers today place a premium upon speed and convenience. So do advisers. All other factors being broadly equal everyone will choose the easiest supplier to do business with.
I use the word “placement” here not for the sake of alliteration, but because every engagement with a consumer today involves them placing their trust with your firm, and ultimately placing an “order” or set of engagement instructions to become a client. Advisers in turn have to trust the product supplier to place the business with speed, efficiency and fairness or their inability to do so reflects upon the customers perception of the advisory firm itself. That process of placing business is sometimes a barrier to getting clients onboard at some firms, to the point where some institutions are referred to as having “policy prevention teams”. Those ones are definitely going to have problems getting sustainable busines support regardless of how well they compete in any other area.
Yet it is an area where product suppliers can make deliberate choices to compete and differentiate. It can provide them with a distinct advantage and trup many other product selection criteria. For example, one local insurance company has an application process which averages 17 minutes. Do they have a competitive advantage over those firms which take 7 weeks? Absolutely!
Performance is measured differently across the sectors of the professional services landscape of course, however whether it is being judged on the basis of an absolute return on investment products, how an insurance policy responds to a client claim, or the effectiveness of a tax or estate planning strategy, a firm is judged on performance of product, service or strategy.
Whatever it is that a firm is promising to the market in the way of product, service or strategic performance the actual performance and delivery of the promise is a point of differentiation that can provide an advantage over competitors. It has always been true, but is possibly more true today with every consumer being a publisher of reviews: performance sells.
The easiest place to compete is in price of course, and it certainly is a competitive strategy which can be a winner. Competing on price is not the same as competing by discounting though, as many seem to believe. There are many firms who successfully compete by charging far more than competitors, as they seek to appeal to a niche part of the market or a niche need, and price is a method of screening out segments of the market that they do not wish to attract.
The danger for those choosing to compete on lower or lowest price is threefold:
More often than not however, while pricing may be an area to compete in, it is an area where one can choose not to compete and merely sit in the middle of the competitive pack. It is not an area where one has to lead the market; there or thereabouts is often sufficient.
This is the area which raised most eyebrows during my recent discussion. “Pay” as a point of difference?
Whether we are considering an institution and its commission or brokerage terms, or whether we are considering a planning firm charging clients directly, the quantum and the type of remuneration can attract or repel clients just as it can attract or repel talent for the firm.
How advisers are paid makes a difference to regulators and institutions perhaps, but how much one is paid makes more of a difference to most consumers. For all that some institutions and product manufacturers choose to take positions on how distribution should be paid without paying any regard to the costs of distribution or what consumers themselves want. Ovbviously this has the potential to have an impact upon the market share – or market support – those product manufacturers receive.
The bottom line really is that when it comes to working out which product manufacturers or suppliers an advisory firm should place their faith and customers futures with, then these are the 5 key areas to consider. Any institution which is a market leader in 1 of them is worth considering, but if they are a market leader in 2 or 3 of them then you should almost certainly be working with them.