Invisible Brand

Lucian Camp reflects on why the financial advice industry has yet to embrace the concept of branding.

Along with window-cleaners, local solicitors and fish and chip shops, financial advisers represent one of the last unbranded sectors of the UK’s consumer economy.

Actually, make that ‘almost unbranded’.There is the odd exception, like Harry Ramsden’s and Bradford & Bingley, even if most people still think the latter is a building society.

Just now, though, it’s timely to speculate whether the situation in financial advice is about to change. Are we about to see the kind of rapid development of large, national, branded businesses that we’ve seen recently in markets such as take-away coffee, bookshops and opticians? The evidence is finely poised.
There are at least three major reasons – two arising from Government policy – to believe that what’s now largely a cottage industry will develop in the next few years into an industry dominated by a few large national advice brands.

First, the Government is working hard to generate a huge increase in the demand for financial advice. Its plans to privatise long-term social welfare require that millions more people take personal responsibility for arranging their own pensions, life assurance, health insurance and so on.To encourage them, it is launching at least one very significant new financial incentive – the Child Trust Fund – which will put at least £250 into the baby-gro pocket of every child born in this country; in return, the parents’ obligation is to decide how to invest it, and many are sure to want advice.

True, the High Street banks are likely to be the principal beneficiaries (if that’s the right word) of the Government’s strategies. But banks have a relationship with financial advice that can be described as ambiguous at best, and they’re likely to leave plenty of space for more enthusiastic players.
Second, the industry is suddenly getting a whole lot more interested in the idea of trying to achieve some economies of scale.The reason – which again can be traced back to the Government – is a really dramatic squeeze on margins. The squeeze is happening in a rather roundabout way. Most financial advisers are paid commission by the providers whose products they sell.

The Government is not directly regulating commission levels, but it is capping the providers’ charges to customers – out of which they have to pay the advisers.The charges on new pension and investment products for the mass market are likely to be capped at between 1% and 1.5% – which, when you recall that some of those bicycle-clip-wearing ‘Man FromThe Pru’-style home service advisers took over 20% of the customer’s money in charges, is a squeeze of positively anaconda-esque proportions.

Even among advisers serving more affluent customers, the quest for economies of scale is increasingly urgent.Their commission and fee levels are under less intense pressure, but there are still serious problems. For one thing, three years of dreadful stock markets have encouraged clients to stay away in droves. For another, the apparently-endless series of mis-selling scandals has driven the cost of Personal Indemnity insurance through the roof. Small firms with weak risk management have found these increases very hard to accommodate.

And thirdly, rapid advances in technology are also playing a crucial role. By far the biggest problem in building a large, branded financial advice business has been the enormous difficulty of building in any kind of consistency of customer experience.This problem certainly isn’t going to disappear, but the arrival of technology platforms that provide the basis for consistent advice-giving processes is an important development.They make it possible – at least in theory – to conceive of large, multi-site advice businesses or franchises that offer a distinctive and reasonably consistent consumer experience from Plymouth to Aberdeen. And it’s only when that’s possible that it starts to be worth worrying about building brands.

But if these three factors – increases in demand, the quest for economies of scale and the emergence of new technologies – are pulling the industry towards a branded model, there are two counterbalancing factors pulling in the opposite direction.

The first of these – I’ve already hinted at it – is the psychological makeup of the average, independent financial adviser.These people are independent by name, and fanatically so by nature.Trying to organise them, it is often suggested, is like ‘herding cats’, although one well-known industry commentator prefers the term ‘herding peacocks’ because they’re vainer and noisier. Persuading these people to adopt common working practices and deliver consistent consumer experiences in order to provide the basis for a national brand is a challenge so unimaginably difficult and painful that few have been brave enough to try it on any scale.

And as if that wasn’t enough, the second key factor is even trickier; going forward, no-one can see how significant returns could be made out of a branded financial advice business. Sure, there would be some economies of scale – for example, if proper risk management processes were introduced, that PI cover might get a lot cheaper. But margins are under such pressure – both on the cost and income side – that potential providers of capital have decided, pretty much unanimously, to give the industry a miss, at least for the time being.

It’s hard to blame them.The biggest financial advice businesses have been losing money hand over fist in recent years. If their future is to consist largely of selling lower-margin products to much less affluent customers (as the Government fondly imagines), it’s very difficult indeed to get excited about the potential.And of course actively building a national brand calls for additional expense, especially if you want to get results quickly. It’s all very well for people like me to say that brand-building needn’t cost millions (and it needn’t), but the less time you have, the more money you’ll require.
So which way will it go?Will the realities of doing business in today’s environment take financial advice down the same branded path as Starbucks, Waterstones and Specsavers? Or will the advisers man the barricades and prepare for a fight to the death in defence of their cottage industry, alongside the window-cleaners and chip-shop owners?

At this moment, we don’t know. But what is clear is that if the status quo does more or less survive, the main reasons will be the conservatism of most people working in the sector, and its lack of appeal as a growth business. Speaking for myself, I rather hope this isn’t the outcome. I’d hate to think that the field in which I’ve worked for the last fifteen years or so is too unattractive to be worth bothering to brand.