Providers of international products should continue to place great reliance on their broker partners for a number of sound reasons
International business is strong again as investor confidence returns. However, one common myth has managed to escape being dumped in the dustbin where it so deservedly belongs.
It is the myth that intermediaries have had their day in the international game as providers do more and more distribution tie-ups with local strategic partners. In reality, there is ample room for both. A good adviser can safely echo the remark of Mark Twain: "Rumours of my death have been greatly exaggerated." And every sensible provider continues to put great reliance on their broker partners, for several sound reasons.
One is that the international market is really very big, with a lot of scope still to grow even bigger. There is more than enough demand to validate a variety of business models - not just one.
Another reason some people have wrongly downgraded intermediaries is that they have also, just as wrongly, downgraded the importance of the UK expatriate market. They brush aside the expat business as if it were yesterday's idea. Yet the market is still today's opportunity - and will be an even bigger opportunity in tomorrow's market.
This is because we really do live in a global economy and few, if any, countries have embraced globalisation in as practical a way as the UK. You can therefore find literally hundreds of thousands of British expatriates in many of the fastest growing regions of the world, doing important jobs - and getting paid top rates for the job. Now, more than ever, they need the sort of independent financial advice that nobody can provide better than a high-quality intermediary.
We should never lose sight of this fact, even if some other aspects of the expat game need to be approached a little more cautiously. For example, doing business with the retirement market in southern Spain is not quite as simple and lucrative as some people may have once believed.
Like every other market, the expat market keeps changing. The trick is to be alert to the changes. With this one, straightforward proviso, I have every confidence that intermediaries will continue to prosper in the still-buoyant market of Britons abroad.
But what are we to make of the growing new trend for providers to sign up with local strategic partners, such as banks, to win new distribution outlets? Although this will continue to develop, I do not see it as a big threat to advisers, for one simple reason.
None of these regional distributors cover the whole market. All the successful ones have carefully identified their own special niches and go after them with a determinedly exclusive focus. Breaking into these niches would be hard, so the alert broker needs to identify which segments of the whole market the major local players are going after - and which they are tending to leave alone.
In most of the worthwhile regions, the segments of the market still left alone, or served in only a spasmodic or half-hearted way, means that there remains a good deal of business to be won. Providing the adviser has worked out where they can add value, then profitable relationships are there to be developed.
demise of the in-out merchant
What is on the way out is the era of the instant in-and-out merchant, selling quickly out of a suitcase and then dashing for the airport.
More and more jurisdictions are starting to impose the same sort of regulatory and transparency requirements that we take for granted in the Isle of Man, the UK or the US. This is especially true of the Middle East, where Isle of Man officials recently visited to sign memorandums of understanding with the new Dubai Financial Services Authority (DFSA). The DFSA has just taken on a no-nonsense Australian, David Knott, to be its new CEO and he will insist on the same high standards that he imposed when he was the executive chairman of the Australian regulatory authority.
The same move to international standards of regulation can be seen in Saudi Arabia, where the new Capital Market Authority is getting into its stride, with similar authorities being established in Qatar and Bahrain.
Provided the regulation is light-touch rather than bureaucratically heavy-handed, this move to enforce serious professionalism works, on balance, to the advantage of the high quality intermediary by giving their potential clients the confidence to invest.
So does the move among jurisdictions where providers are based to tighten up. Regulation is becoming more unified, and is therefore more effective from the standpoint of mainstream providers and advisers, as well as consumers. Few bandit jurisdictions now remain. Those that do cling on are known for what they are. A firm's reputation would sink if it located in any of these rather than in the Isle of Man or the Channel Islands.
From the providers' standpoint, much new business can be won by forming strategic alliances with major local distribution institutions, in places where local market knowledge and grass roots familiarity are essential. As new markets become more receptive to the sale of sophisticated personal finance products, expect the trend towards strategic tie-ups to continue.
For example, there are now huge opportunities to sell to non-UK consumers across much of the Middle East. It would make no sense to blunder alone into some of these relatively new and quite distinctive markets like an L-plate driver straying into a Formula One race. Partnerships make sense for all concerned.
Hong Kong has already become a mature market for selling to non-UK customers, as well as to expatriates.
Perhaps the most disappointing market of all is the European Union. Yes, it is an enormous market and the opportunities are significant if you are prepared to play a long game. But it is still not a genuine single market.
Most of the major members continue to ring-fence their own retail financial markets by imposing artificial restraints on international competitors. The Common Market, as it used to be called, has existed now for 50 years. The UK has been a member since 1973 and nearly 20 years have passed since Margaret Thatcher thought she had negotiated a 'single market' deal. Yet, in spite of all the protestations of unity and common endeavour, the EU still seems to be at the mercy of national self-interest.
The prize for getting established throughout the EU can be huge. But national barriers to entry mean that it remains a market for the long haul rather than the quick fix. It continues to develop more slowly for investment and financial services than if it were by now a real 'common market'.
However, let us not forget the UK. For Manx-based providers and their broker partners, the opportunities to sell into the UK are most encouraging - there are no artificial barriers. If you can identify the right product, the UK remains a great market.
Bear in mind, though, that the UK market is becoming even more competitive, not from the entry of new players but more from an almost hair-trigger sensitivity to price. So if you are going to focus on the UK, make sure you are confident you will hang in there for the long run.
Other international markets may have a less developed financial services infrastructure but, correspondingly, they are less likely to slap on price controls such as the UK's recent 1% limit on stakeholder pensions. They may also be less addicted to a time-consuming regulatory process. Over time, I expect Manx providers will increase the breadth of their international focus, especially as new markets emerge. Not many years ago, for example, Friends Provident did little more that 10% of its business abroad. Now its expanded international operations are anticipated to contribute about 35% of total life and pensions new business in 2005.
Finally, one of the best reasons for optimism that our industry will continue to flourish in the global economy is the welcome return of the confident consumer. Once again the consumer is buying equity products rather than automatically scurrying into bond products. Optimism is in the air again, and that is reflected in sales.
While this is good, it must not lure us into complacency. Our market changes all the time. We have to keep studying it, adapting and moving fast to stay with the pace. If we do, the future is bright.
Industry Voice: Scottish Widows pension expert Robert Cochran and economist Andrew Scott discuss the future of employment and income, in episode three of Scottish Widows' podcast series.
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