Consider this ..

Why would any sane general insurance person decide to offer or choose to continue to promote financial services in today's market place? There are so many issues to be faced.

As an industry that had little regulation or distribution controls until the latter half of the 1980s, the effect and impact of the regulation on retail distribution has been significant. Financial Intermediaries, the Managers and Brokers Regulatory Association, the Securities and Investments Board, the Personal Investment Authority and the Financial Services Authority are just a few of the organisations that have had a hand in bringing the salesmen, businesses and providers to order. All have had their highs and lows during their regulatory span although the FSA is having a more positive and sustained impact than the others.

Hot on the heels of the introduction of regulation followed the first major mis-selling scandal, pension transfers, opt-outs and non-joiners, which went on to involve a full-scale review. Then there was mis-selling of endowments and Scarps; so what is next?

Many IFA businesses failed during this period, with many more composite broking businesses struggling to make profits because of the financial drain placed upon them by their financial services operations. The FSA put out reviews thick and fast, and latterly we have had the Retail Distribution Review and Treating Customers Fairly to deal with.

Staffing can prove a nightmare, with prima donna staff demanding high salaries with bonus schemes while still wanting to operate and gain reward by taking commissions. Then there is the major shortage of competent, qualified staff that makes delivery of any level of service a major problem.

Technology offerings are available for financial services businesses, high quality data can be stored and manipulated and client service efficiently delivered - if only the advisers used IT properly. Is it any wonder that general insurance professionals have moved out of financial services or chosen not to enter it in the first place?

So why now do we see a move towards a new breed of broker promoting and developing a comprehensive and proactive financial services arm?

This is because there is the demand from the clients, a profit to be made, it increases the embedded value of the business, affords marketing opportunities, encourages client loyalty and retention and protects the client bank from poachers. It also provides a competitive edge when it comes to tendering for new business.

As a growing business, we want to ensure that we can hit all the business sweet spots of any potential new client and we want to bring a comprehensive and truly holistic proposition to the table when we work with corporate entities, trusts or ultra high net worth individuals. The above are all good reasons for developing a financial services offering and there are many more I could go on to mention. So what to do about the downsides already outlined?

Define your strategy

Being aware of the difficulties, opportunities and challenges empowers you to formulate your strategy and take charge of risk management. If you accept that you wish to provide a financial services offering to your general insurance clients, you then have to decide if you offer the service in house or if you choose to work in conjunction with another established and reputable organisation. The latter route can be easily arranged assuming you can find the right business partner that shares the same business values and has the same client focus as yourself. You then act as an introducer to them and pass work over. An agreement should be in place to ensure that it is on a non-compete basis to ensure they take the regulatory responsibility for their advice, cover the issue of client ownership and outline any fee or commission sharing issues. Get any agreement checked to ensure it protects you and covers any business issues that are of concern.

Introducer arrangements are not suitable for everyone and they do not increase the value of your business. If an introducer agreement is not for you then you can always look to establish a joint venture with an established firm of financial advisers. This enables you to utilise their expertise and knowledge and them to gain access to your referrals. You will also benefit from having a share in the value of the new company. Finally, you can go and set up from scratch, which is a long, expensive and drawn out process. Only go there if you are serious and in it for the long term.

Financial services regulation is working; the ground work of the various financial services regulators has presented opportunities and spawned the birth of a new profession. Earlier I referred to financial services product promoters as sales people, we have now moved on from this and are into the realms of professional advisers. Qualified, advice-led, client service focused and promoting fee-based work.

Whether operating in a general insurance or financial services capacity, the quality of the client bank is of paramount importance in meeting turnover and profit targets. High quality clients lead to high quality business and this therefore affords the opportunity to maximise the earnings and profit potential for each client. Cross referral between disciplines does come with risks and you must ensure that every part of your organisation performs to the highest professional standard in delivering clients' needs. Getting it wrong as you expand your range of services can have disastrous consequences on your core business and its reputation.

As a business you have to choose to operate within your core competencies. Composite brokers have previously been labelled as generalists rather than specialists. The new breed of composite broker is building its businesses around core areas of specialisation, enabling them to operate at the top end of the market and in a specialist capacity. Recognising the needs of the client and the core skill needs of the business to meet the client expectations is key to delivering profitable, consistent, professional, client-focused multiple solutions.

What to do

Whether you are offering or considering offering financial services to your clients, you will first need to update or formulate a business plan and review your business processes as you will be choosing to operate within another highly complex and highly regulated environment. The backbone of the financial services business must be effective regulatory controls and structured and efficient sales processes with robust business processes and practices. Get all of this right at the outset or following a review and you will form a base from which you will have a scalable business and be able to grow confidently.

Having designed the processes and put in place the controls, you need to find the correct people to ensure these are implemented and maintained as well as the necessary audit trail to satisfy the regulators and shareholders within the business. The right people in the right place fulfilling functions for which they are adequately skilled and rewarded will enable the structure to develop and the business to evolve.

Sometimes there are unique challenges to face in the operation of a financial services business and it is important not to waver from a commitment to continue offering services to our clients and to believe it is necessary, desirable and beneficial to all parties. Regulation has brought changes and challenges and it is important to invest heavily in a staff that is equipped to deliver a vision to clients. Growing the business can come in many facets, including organic growth, recruitment of high quality advisory staff, delivering services through other professional practices and acquisition of other businesses.

Organic growth is the preferred option as growth can be achieved easily and at minimal cost. You cannot be all things to all people and those that try are doomed to failure. Work needs to be done on your specific client proposition so that you can define your target market profile. It follows that you will need to understand your existing client base and segment it so that you can understand the needs of specific sectors of clients and then target them with the most suitable services and products.

Up selling, cross selling, call it what you like. This is a massive opportunity to unlock the embedded potential within the general insurance client bank before a competitor does. Any general insurance broker operating without financial services must accept that their clients have financial services needs and therefore have relationships with financial services advisers. Do these other advisers offer general insurance? Do they plan to? Are they developing general insurance relationships with your competitors? As much as general insurance brokers have looked at financial services business, many financial services businesses are looking at their options to deliver general insurance as an integral part of their service and client retention strategy.

Recruitment and retention of good quality, highly qualified staff is very important for the success and development of the financial services venture. Many good financial services people will have a client following that will bring immediate income. This does not come cheap, however, as fighting restrictive covenants is a costly and time-consuming business. What of the quality of clients coming across - do they fit your target market profile? Are they profitable? How are you going to lock the key staff into your business? Client relationships cannot be moved easily as this is a people business and personal relationships are valued more highly by a lot of clients than the brand.

A question of time

Once you have managed to build your ideal business and its profile, others will be attracted to it. A robust business with high quality staff and a top quality client proposition will attract other professionals that will wish to use you as an introductory source for their clients. Great news, but watch that you get the quality of business you require and you do not pay too much to acquire it. Time is money and your advisers have limited time, so you do not want to fill this time up with work on reduced margins.

If you choose to look at acquisitions as a quick way to grow your business, be prepared to invest a lot of time and effort. There are a lot of businesses out there and finding the right ones is not an easy task. Watch out for retained liabilities, staff turnover, client profile, business mix, staff contracts and lots and lots of other areas. Most prospects will look great from the outside, but once you delve into the due diligence be prepared to reconsider your position. Acquisitions are better approached cold and impersonally. Employ professionals to do the digging for you and let them get the financial, legal and compliance data for you to then analyse the outputs and make the decision.

You run a business and deal with clients, these clients have needs and they come to me for solutions. If you cannot provide them, they will go elsewhere.

- Robin Lucas, Managing director, Lucas Fettes and Partners.