With the industry currently divided over tied, independent and multi-tied advisers, the focus should be on what is right for the consumer
We have seen over the past few years a marked reduction in the level of charges being levied on investors.
We have also been affected by a huge amount of regulation and a significant amount of regulatory change.
Over the next few months, we will start to see a clearer picture as to how the industry will need to respond to these changes and what sort of cohesive framework we will be asked to work within.
So what does all this mean? If we start off with industry consolidation, we can see many names that have been removed from the financial services industry either through merger or closure or sale. We are seeing pressure on charges, via stakeholder pensions, hitting the industry and a significant amount of remuneration taken out of the industry through that.
Moving forward, in the short term the impact of the regulatory review, principally Sandler and CP121, will come to bear. We don't believe 1% is the correct level for a charge cap.
This could result in increased pressure to drive down charges and costs for consumers. Simplified products are seen as one answer to removing some of the need for advice and we are going to see new forms of distribution emerging. The opportunities for multi-ties and other imaginative forms of distribution will come and compete for an element of the savings industry.
If we look out a bit further, consolidation is definitely going to continue because it is all about being big and efficient. Consolidation is not necessarily going to happen through merger, takeover and acquisitions. We believe it is more likely to happen through a general concentration towards the bigger companies that have the stronger brands and the capital support infrastructures to be able to invest in IT.
So a lot of change is going to happen in a relatively short space of time. The backdrop, of course, is the equity market malaise and that clearly has some quite strong implications for the way the industry can adapt to the challenges that it faces.
Product providers will feel the strain in terms of capital and a lack of investor confidence.
No article would be complete without a quick mention of the savings gap. The savings gap, of course, won't be helped by the current unrest in the financial markets but advice on debt repayments, the cash to equity allocation, use of tax-efficient wrappers, selecting the top performing fund managers will all have an impact on the savings gap.
The biggest impact is going to be our ability to encourage people to save more and we see that as part of the advice process.
The expectations of our consumers are changing ' they don't necessarily want to do business with those organisations they have used in the past.
We are going through a process at the moment at Norwich Union of reminding ourselves that the US railroad companies failed because they thought they were in the railroad business and they didn't realise that they were in the transport business.
In the 1950s, with the advent of cheap domestic airlines, these companies didn't move into the airline industry and many millions of dollars were wiped off as they lost market share in terms of the transport industry.
We are very keen internally to get everyone at Norwich Union focused on the fact that we are not an insurance company ' what we do is provide imaginative products to help people accumulate assets at various stages during their life cycle.
If we are going to become more efficient, technology has got to be adopted. What can technology do for us? Well, technology can integrate the functionality of the advice process and take it completely into the administration process.
We can draw a parallel here with the banks where internet banking works alongside the banking hall and telephone banking. The integrated approach is increasingly becoming the expectation and obviously reduces operating costs right the way across the value chain.
Provision of face to face advice is integral to closing the savings gap but some sort of lighter touch regulatory approach is undoubtedly required if we are going to deal with consumers who have got less to invest.
That is perhaps a sort of pointer to the regulator but, we believe, the rest actually comes back to the industry where we need to get the basics right. We need to give consumers what they want, when they want it and in a manner that they want it.
That is going to require a different approach to the traditional relationship between product providers and advisers.
We need to integrate the way we do business through e-commerce and technology. We need to take a joined up approach to raising consumer confidence and one such example is the ABI's raising standards initiative, where a collection of life companies have got together and tried to say it is possible to kitemark these products.
We need to get that message across but we need to do it in conjunction with the advisory industry. Strong brands are going to be a differentiating factor going forward and our focus is very much one of building a consumer brand that can be used by advisers and can overarch the good work done by advisers to create some consumer pull into the advice world.
It is very important to be focussed about your proposition going forward. It is no good arguing about tied, independence, multi-tie and which is right. What's right is what's right for the consumer.
Some consumers are happy to buy financial products through Tesco. Some consumers recognise and value the services that are provided by an adviser. It is down to the consumer to choose and the willing models will be those where people have thought about what it is that their consumers value and have matched their proposition off against that.
'Illusion of control'
Reasons to be cheerful
Total investment reaches £9m
Medium to long-term capital growth