Bank on this: Product sellers are doomed
Sales & Marketing for Professional Services & Strategic Issues

Bank on this: Product sellers are doomed

May 6, 2013

by Tony Vidler

Bak distribution of financial servicesIn financial services we have talked about it for some years, and there is no doubt that the banking institutions have been much better and more effective marketers of financial services than all other institutions.

While reading a superb report on the State of the Kiwisaver Industry in New Zealand by Colin Nefdt there was a single graph which held my attention for some time.  It shows in a single picture the changing face of financial product distribution during the last 5 years.

The quick summary is banks are dominating product distribution, and geting increasingly better at it.  That’s right…they are getting better  at it.

In the New Zealand market our national retirement savings scheme (KiwiSaver) is an unusual beast by international standards. Every employee gets enrolled automatically in it when they join a new workplace.  But they can opt out of it quickly if they choose to (and know they have that option). Even if they don’t opt out of the scheme itself they can pretty much opt out of contributing to it in reality, but remain a member. And it is no problem to enrol people via the workplace when they don’t know which fund manager to choose – we have a default provider panel.  A small selection of fund managers have been appointed “default providers” and new entrants get allocated amongst them, making it an easily accessible retirement savings scheme even without any financial advice component.

As one would expect, a significant proportion of new members have come into the scheme since its inception via the “default provider” path.  Employees changed, or started, jobs and with no adviser involved in helping them work out what they should do they were allocated a fund manager.

Easy money for fund managers on the default provider list.  Made all the more simple as Kiwisaver is a relatively simple retirement savings scheme to understand, and very very simple to enroll in.

Yet, many in the population hadn’t grasped the incentives and benefits of joining the scheme, so financial advisers had  significant success in enrolling people into the scheme as well.

5 years ago, the two primary methods of consumers being enrolled into the scheme were either through a default provider or via a financial adviser.  But look at what has happened in just 5 years:

financial advice in decline
These figures are from just a single product provider of course (Onepath).  It happens to have multiple distribution channels, including working with financial advisers directly, an associated bank channel (as Onepath is ultimately part of a banking group), and it is also one of the main default providers.  It is this combination of distribution methods which makes its numbers particularly significant.
The point in all of this is that financial advisers would do well to accept that the Banks are simply better at engaging vast quantities of people with relatively simple financial products. They have the infrastructure, the distribution capacity, the market intelligence (they know what is happening in your cashflow right?), the marketing savvy and the premium positioning of being perceived as “safe” institutions….
So if the banks are better at selling product than an adviser, what is an adviser to do?
Concentrate on providing advice that adds value in peoples lives rather than selling them products.  The Banks are already dominating that space.
The full report by Colin Nefdt can be viewed (with his permission) at:

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Comments (2)

  • Tony, good article with a sound conclusion. As someone that has worked in the banks for the past 7-8 years and is now out in the “real world” again I can endorse your comments.
    The banks will supply a simply index hugging solution to their clients as they will always look to benchmark themselves against the market, and are overly fearful of underperformance, as they have to present this to the board.
    We as non-affiliated investment advisers can offer a much more encompassing service to our customers. We are not limited by the overly compliant and politically dominated corporate world and as such can offer a much more nimble, best of breed approach.
    What will be interesting to watch however is what happens to the banks hold on the Kiwisaver funds as the value of these portfolios increase. There is allot of data coming out of Australia that points to investors becoming much more interested in understanding what they are invested in as their superannuation sum increases. I think it would be safe to assume we can expect the same thing here, and this increase in investor interest will hopefully finally drive the NZ public to take an interest in understanding what they are actually signing up for versus trusting the “safe” institutions.
    One last observation would be that we should not see the banks as competition as they are very good at offering a mass produced solution for the lower end of the market, and this is sorely needed in a country where financial literacy is woefully low. They are needed to fill a gap, which is at the lower end where the clients ability to pay advisers for their time is limited. Any institution that can assist in creating intelligent and safe saving for the future is need in this market.

    AFA adviser
    • Fair points there. I wonder though: will increasing fund balances over time result in a reasonable proportion of consumers turning back towards non-aligned advisers?

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