In a free market only the most efficient will survive says John Dean, Director, Punter Southall Health & Protection Consulting
‘The only constant is change’. It’s a hackneyed phrase, but one that supposedly sums up the world we live in today. And yet, if this is genuinely the case, why is it that in the corporate advisory market – and in particular the insurances brokering market – the sector looks remarkably similar to five years ago?
The blunt truth is that where many of us have stayed the same, in other areas, such as retail brokering, the market has dramatically innovated, and changed for the better. You only have to look at the phenomenal recent growth in retail broking, with all the various price comparison sites dominating the market to see this for yourselves.
How different this is to our sector. With average annual client retention rates typically being over 80 per cent there hasn’t been a stimulus for our sector to change. Firms seem to be content with their margins. Yet in many cases they are not investing to become more efficient and improve service.
But the reluctance of the sector to change could be its downfall, and in the next few years we must all consider changing the way we operate.
I won’t be popular saying this, but for our businesses to survive, we must charge less and provide a better, faster service. Many advisers operate on the basis that 80 per cent of their profit comes from their top 20 per cent of clients. But if you don’t invest, it will be the most valuable 20 per cent that defect first. In fact, it’s my strong view that the advisers that will be around in the next five years will not only be the ones that have invested, but will be the ones who will have cut their operating costs too. And when I mean cut costs, I mean reduce them significantly – in the order of 30 per cent over the next three years.
In my experience client fees were historically set at the rate of ‘standard commissions’, and advisers then built their client service model to justify their remuneration. This model must modernize.
In future clients need fees to be fair and set according to consulting needs and time spent working for them.
Clients of course value relationships, and we need to provide appropriate support, but do we really need to be supplying them with multiple reports and client meetings they may not require?
We need to invest in systems and technology to further automate client work and reduce man hours often spent manually handling insurer and client data. But efficiency gains require investments to be made now.
Removing outdated practices also helps, and it begins – literally – at home. Why do we still drive for two hours to present a word document to a client, have lunch, and then drive back all the way back again? Why are many advisers still paying for expensive corporate head offices which clients rarely visit and which cost staff thousands of pound and hours of time to get to – when they can be as productive at home logged into systems?
All of these costs, have to be covered by clients fees, but at a swipe, we can reduce them, by working in a way that’s better for you and your client – by video-conferencing and smarter working practices, such as working more from home.
I understand that what I’m saying will not be universally popular. I’m rocking the boat, but we’re moving to a place where if you want commitment from your clients, you need to show it to them back, and this can only be achieved through a complete re-appraisal of the way we work. We have to give the client more choice about what they want. If we reduce costs, and increase service, then we will have a different value proposition that will help us retain clients and grow our businesses. I know many of the leading firms are taking this approach, but those who refuse to change may struggle in the future.
What I’m really calling for is for us all to put a collective new marker in the sand. A modern broker has to have a flexible approach, invest in technology and has to be one that drives costs down and pushes appropriate services up.
It may sound difficult at first, because it’s disrupting the normal way of doing things, but ‘normal’ can’t stay as it always has. It’s tempting to keep taking clients’ money, and carry on as before, but if we do, we’ll stay operating an outdated business model. If Margaret Thatcher has taught us anything, it’s that in a free market, only the most efficient will thrive.