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Big is better?

13 June 2004 Angelo Coppola

Old Mutual launches a new distribution network to look after the interests of independent financial advisors, and help them in the new regulatory environment.

The association’s business is to be known as Masthead Distribution Services and according to deputy MD of Old Mutual SA Paul Hanratty Old Mutual SA is to hold 75% of the shares while the remainder of the shares will be allocated to IFAs as they subscribe to the services and business.

He says that while they are the majority shareholder in the business, they may consider approaches from competitors to dilute their shareholding, “but it’s unlikely.”

Hanratty says that they have come to the market with this free offering on their own. “If we were to have approached all of our competitors we would still be in discussion phase. We have taken the financial and capital risk to set up the infrastructure and discussions have now commenced with the other big players to get them interested.

“I am hoping that the major players will buy into what we have set up, because we all face the same issues. I am hoping for a rational response to our offering.”

Competitors

Hanratty says that they are the major player in this sector and are the significant market share holder. He mentioned Liberty and Momentum as the other significant players, with Sanlam also coming into the frame. This in terms of collective investment schemes, linked products and life.

According to MD of Masthead, Rose Keanly, the new offering will handle licence applications, inspect practices, be their compliance officer, submit annual audits and assist with client complaints through an ombusdsman.

Keanly says that they can almost guarantee that IFAs signing up now with Masthead, who haven’t been licenced, will get their licences.

Code

“There will be an enforceable code of conduct, which we will insist that brokers sign when joining,” says Keanly.

One of the other offerings is a due diligence on products available in the market, which Masthead would undertake.

No product ranking

Hanratty was quick to point out here too that this would not lead to a ranking of products but more a focus on educating IFAs about the right questions to ask and to provide an understanding of the product.

Hanratty confirms that half of their business comes from IFAs and it is in the company’s best interests to look after the IFA market. “If we loose IFAs to the banks then we loose business. Worst still that we may loose IFAs as they decide to exit the market altogether.

And then?

The other business that Old Mutual is involved in the IFA market – Celestis – which manages the services for Tradewind and Navigator, has not penetrated the market to the extent that Old Mutual had hoped, although Keanly and Hanrtatty are quick to point out that these brokers – specifically associated to the Navigator offering are the top end of the investment IFA market.

“We expect this offering to be of more interest to the Tradewind sector and have indicated as much to them in our discussions.”

Currently some 200 IFAs subscribe to these services.

The offering includes maintaining broker independence in that the association doesn’t want to get between the IFA and the product provider. “The contracts between those two parties will remain as is. So will the commission levels,” says Keanly.

Business model

“We – Masthead – will make its money from the relationships with the product providers. IFAs will not be charged anything. There is no cost of membership. We do ask though that they move away from any of the other networks that they may have relationships with.

According to Keanly: “We want to avoid duplication of services.”

Motives?

Hanratty took a sideways swipe at some networks currently operating in the South African markets saying that generally these networks have short life spans and the offering is not comprehensive.

“Some of the network operators are driven by profit motives and simply want to grow the network and then sell it off. Other operators don’t have the experience to run big operations. They also don’t have the financial backing of the big operators.”

Comparative Networks Corporates MAST
HEAD
iCompli
PWC
Moon
stone
Finsol
net
Destiny
IFANet
Hamil
ton
Advice
net
NFP
Banks Agency
Forces
Cost efficiency
  • Competitive fees
  • Purchasing power
  • Efficiencies
  • Broker independence
  • Independent contracts
  • Product choice
  • Objectivity
  • Risk Management
  • Compliance service
  • Product due diligence
  • Advice processes
  • Complaints / OMBUD
  • Simplified businesses
  • Streamlined product info
  • Simplified processes
  • Effective technology use
  • Product marketing
  • Client benefits
  • Continuity
  • Consumer protection
  • (This graph was supplied by Rose Keanly, to position the Masthead offering)

    Keanly says that the Masthead business model is simple. “We don’t charge the brokers anything to join and remain members. We don’t charge them for services. We enter into relationships with the product providers.”

    The new offering is being punted to more than 2300 IFAs and according to Hanratty for this to be a viable business opportunity they would need more that 750 brokers to sign on the dotted line.

    “We are worried about shrinkage in the IFA market, because we will then loose business and market share. We want new blood in the market

    Critical mass

    In terms of the critical mass required from their competitors, Hanratty says that: We would need at least one of the other top two players (Liberty and Momentum) to come on board.”

    There are some concerns about falling foul of the Competition Commission and tribunal, but Hanratty says that they have done their legal homework and they seem to be of safe ground.

    “We have also had discussions with the FSB, explaining the concept.”

    Editor’s thoughts:

    * What will be interesting to see is how the product provider competitors will react to being charged a fee by what is ostensibly Old Mutual, for the distribution of their products.

    * I wonder what the other networks are thinking right now?

    * Is there room for another network player

    * What is an IFA to do – spoilt for choice?

    I would love to hear your comments on this development. Simply email me: [email protected]

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