Financial services giant backs advice-led strategy
Large diversified financial services providers are favouring advice-led over advice-centric distribution strategies to deliver shareholder growth and the best possible financial outcomes for their clients over the next three to five years. This emerging focus was shared by Jeanette Marais, Deputy CEO at Momentum Metropolitan Holdings, during the group’s 2021 Investor Conference. Her presentation, titled ‘Embracing advice-led distribution’, set out to inform investors about the group’s three-year distribution strategy; but we found many pearls of wisdom for product suppliers and independent financial advisers (IFAs) alike.
Keeping the advice force happy
Marais kicked off her presentation with a frank assessment of the business’ support among financial advisers three years ago. “Advisers were telling us we had a great brand and a comprehensive product offering; but we still lost market share … they said that the business was too complex and we knew [internally] that our service levels were not where they needed to be,” she said. Paying attention to advisers’ feedback has proven to be a great way to identify weaknesses in business practice and structure.
Marais explained that Momentum Retail was, at the time, operating a segment-led or matrix structure model that pushed product houses as ‘centres of excellence’. The problem with this strategy was that there was a complete decoupling between product provider and the adviser / client who sat at the end of the value chain. How does one address this shortcoming? A good first step to reposition a business for future growth is to understand what you are working with in the present. You need to know where the business is at a particular point in time before you begin conjuring up fancy solutions. Only once you know what drivers, vehicles and fuel you are working with can you begin thinking about a new destination and planning your route and re-tooling your business to reach it.
Momentum’s ‘reset and grow’ strategy, which served from 2018 to 2021, has gone some way in addressing the shortcomings identified at the time. “The support [we enjoy today] is the best way of showing that we are on the right track,” said Marais, who observed that the Myriad brand had reclaimed its position as the market leader in the IFA and bank adviser segment insofar its risk and protection offering, per a 2020 NMG survey. The Momentum Wealth business and platform is also making up lost ground; but has some way to go to return to the dominant position it enjoyed in the early 2010s.
Being ‘born again’ as an advice-led business
It was interesting to unpack the various considerations in Momentum Retail’s 2018-2021 strategy. “We realised the incredible importance of re-establishing our end-to-end product businesses and bringing our distribution partners – our agency force, IFAs and networks – closer to our day-to-day thinking,” Marais said. Another key change was how to repurpose from an adviser-centric business, in which the product provider focused more on the adviser than the client, to an advice-led business. “We used to design products for advisers; when we thought about our business it was about how we kept advisers happy;” said Marais. “Nowadays, we have brought clients back into that equation by thinking about their needs when we design our products”.
This is a great lesson for product providers who would do well to create the right mix and level of interaction between product, adviser and client. Momentum Retail believes that product providers should not shy away from being prescriptive in their attempts to achieve this. “The best example of an advice-led business is one that puts well-researched investment products that offer great financial outcomes to clients, into the hands of advisers and then digitally integrates this into their advice process,” said Marais, who dedicated a few minutes to exploring the evolution of independent financial advice from a South African perspective.
Traditional IFAs are specialising and other changes…
The first observation was that traditional IFAs were specialising across the investment and risk landscape. “It is increasingly hard for one adviser to sit in front of a client and offer advice on investment, protection, short-term insurance and all the different financial products that are available in the market; so we are seeing a definite shift on an individual basis towards specialisation,” said Marais. The complexity of the domestic financial advice landscape is illustrated by the nine financial product categories that Momentum takes to the IFA market!
A second observation is that advice practices are becoming larger than before as they incorporate the different advice specialisations into their businesses to offer holistic financial planning to clients. In this context, financial planning is inevitably delivered by more than one individual. Third, there is a significant acceleration towards network structures owned and operated by advice firms, on the one hand, and by product suppliers, on the other. Fourth and finally, there is a shrinking opportunity for diversified insurers to distribute their investment and risk products via banks. “The banks have come in with their bank assurance models and there is less opportunity for advisers who work for banks to support anyone outside these models,” noted Marais. She added that post-RDR, retail advisers in the bank environment would most likely be classified as product supplier agents.
Attracting new advisers to the industry
Momentum’s strategic objectives insofar its agency force includes helping advisers to grow their footprint; to give planners the right knowledge, skills and tools to do their jobs; and to assist them in their efforts to grow their client bases. The ticket for success in this space is to get the agency force in front of clients and convert consistent advice into investments in the product supplier’s vertically integrated products.
Growing the number of advisers in a network environment can been tough; with many insurers growing wary of training in-house due to these advisers being snapped up by competitor firms. “We are well-positioned to grow in this network space; but we acknowledge it is a competitive environment,” said Marais. The best way for product providers to encourage advisers to join this type of distribution channel is to offer an incredibly strong value proposition. There are also plenty of plenty of challenges in growing distribution capacity by acquiring existing advice practices. The successful integration of newly acquired advice practices is contingent on retaining the already-established relationships with clients.
Despite these difficulties, Momentum Distribution Services has plans to grow from around 2300 supporting intermediaries presently to 3000 by 2024. Marais explained that the division would deliver an advice-led strategy and focus on independent advice in close partnerships with different product houses. “If every single IFA joins a network or bank or insurer it will actually severely limit the areas that we have to play in,” she said. Additional focuses would be on offering a multi-segment IFA proposition and specialisation per product.
Re-establishing trust among SA’s adviser community
An interesting observation made during the presentation was that you can become adviser-led without sacrificing client outcomes or profitability. “In many cases, where our advisers were sales-led businesses, being an advice-led business gives them greater longevity and certainly has helped them to hold on to many more clients; because their advice proposition is so much better,” sad Marais. She closed with a reminder of the value of advice in the South African financial services context. “Our business, and the broader South Africa public, would not be where they are today if it was not for financial advice and the financial advisers that do a fantastic job for clients”.
Writer’s thoughts:
The Momentum Metropolitan 2021 Investor Conference offered some unique insights into how product providers view the financial advice and financial adviser landscape over the next three years. We found value in the discussion about emerging trends in distribution and appreciate the group’s commitment to grow its adviser force to 2024. Are you in broad agreement with Momentum’s shift from an adviser-centric to an advice-led financial planning and business model? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
