Silver lining or golden opportunity?

Every cloud has a silver lining. In the face of the avalanche of bad news out there, FAnews asked the industry for some good news and discovered that the silver lining is actually a golden opportunity for intermediaries.

While it seems we are surrounded by negativity and from every corner of the globe, and the country, there is news of financial distress, retrenchments, liquidations, repossessions and economic turmoil, the current economic and market conditions hold some very interesting opportunities for brokers.

"Brokers should not lose sight of the fact that the South African market has huge potential for growth, as South Africans are heavily underinsured and retirement planning is poor," says FMI. "The importance of this industry and the value that we add can be clearly seen in these market conditions. Every day, we pay claims that enable clients to survive financially. We help people to protect the wealth that they have created. We protect businesspeople and salaried employees against repossessions, liquidations and the risks that could ruin a business. We ensure businesses and households stay afloat and in the current market, the value of the right insurance will be clearly demonstrated."

Recession-proof

Brokers are also ideally positioned to take advantage of the opportunities the current conditions present. Liz Still, editor of Intervest notes that by definition, the financial advisory business is recession-proof. "A business that serves ongoing needs in the human life span should survive. During recessions people still get sick, married and retrenched, and they still engage in risky activities, have children and retire. All these events call for an assessment of personal finances and investment in different products. There is an ongoing need for new products and financial plans, despite the economic conditions."
"Being the engineer for the creation and preservation of their clients' personal wealth in the process of achieving financial independence is not a seasonal job," agrees Johan Gouws, Executive Director at Absa Investments. "It was understandably easier to attract investments and make recommendations when times were good, but it is in tough times when a back to basics approach is required and when the quality or the lack of advice rises to the surface. The quality of sound investment planning will have been proven and clients will be in a position to increase their market exposure in order to accumulate assets at more attractive values than 18 months ago.

More receptive clients

"Clients have become more willing to receive advice after many have burnt their fingers by trying their hand at financial planning in a 'part-time, do it yourself' manner," adds Gouws. "The expertise of a professional and trusted advisor will once again be valued while the relativity of fees charged for advice will be put in perspective, given the losses realised due to uninformed and uncoordinated efforts in trying to manage personal wealth.

"As the mood starts to improve and as the sun rises on a more mature, knowledgeable, appreciative and committed financial consumer market, the landscape will have been well prepared for the future of the truly professional advisor."

Karen Thomas, Head: Brand & Marketing of Masthead concurs, saying that individuals are far more aware of their money management habits than they were a year ago. "They are likely to budget better, think before spending, prioritise saving, use credit more sparingly and check that their financial products offer value for money. To ensure they make the right financial decisions in this economic climate, they are more likely to use the services of independent brokers, who provide objective advice.

"Independent brokers fulfil an important role in creating wealth. This role has not changed - individuals still require the services of an independent broker for sound financial plans, perhaps now more than ever."

Providing solutions

Craig Harding of Altrisk says, "I can't think of a time in recent history when the services of intermediaries were more desperately needed than now. The risks we face in the current climate have increased and irrespective of a client's position, he or she needs the services of the experts in the field – the intermediary - to ensure adequate protection from these risks."

"With sound advice clients can mitigate their risks and protect against economic instability. Market turbulence has created an interest in higher limits and insolvency protection and this is where innovation from risk consultants and insurance brokers comes into play in providing an insurance solution that provides excess capacity to keep clients portfolio's stable during market volatility – and beyond," adds Guy Scott, CEO of Aon Risk Services. "There is no doubt that intermediaries have a key role to play as market educators and advisors at a time of increasing consumer frustration."

New ventures

Simon Colman, Camargue Liability Underwriter, says that the current conditions have created the perfect opportunity for product innovation and for capitalising on existing, faithful markets. "Successful participants in this market will make their mark by focusing on two core areas: the development of current clients by offering add-on solutions that actually add value; and shifting the grudge purchase perception by offering products that not only transfer risk but also manage it, such as the services of specialists that can advise the client on matters that do not necessarily reduce the insurance risk, but rather enhance the business."

"There is a definite positive spin off for the brokers who concentrate on the low to middle end market where remuneration is largely on a commission basis," adds Scott. "A gradual hardening will bring relief to these brokers and allow for the much needed organic growth. Brokers also need to start re-evaluating client portfolios to ensure they are adequately covered."

Momentum considers the current market as the ideal time to diversify. "There are a number of industries that are booming and experiencing record high sales. You need to be well positioned to capitalise on these industries. In addition, brokerages with diversified income streams are less affected by economic downturns as they look after all the needs of their clients – and where they lack expertise they enter into joint ventures or partnerships.

"Diversification also ensures that brokers can cater to different market segments, which experience the global financial crisis differently. The upper income market should be less vulnerable to the crisis and still able to produce meaningful new business. A focus on this segment may therefore be beneficial to financial advisors during 2009."

Opportunity in adversity

However unfortunate, early retirement or retrenchment also open up opportunities for individuals to reassess their financial future and their career options, and for intermediaries to add real value, says Momentum. "One of the realities of such an event is that there is an immediate need for proper financial planning. A large single amount normally becomes available and should be invested appropriately as part of a new retirement plan, especially where retirement planning was previously the responsibility of the employer. Some people also aim at becoming entrepreneurs, and appropriate financial planning is clearly a prerequisite to achieve success in this regard."

At the end of the day, out of adversity there is always opportunity – you just need to go and find it.