Financial services - The power of unity

Perhaps the most forceful factor in combining broking and financial services has been the acquisitive behavior of firms such as Jelf, Oval and Towergate. In their bids to create broking behemoths that offer a one-stop-shop service to clients, they have pumped millions of pounds into the welcoming pockets of grateful financial services companies, which have in turn become part of these burgeoning empires.

Questions remain regarding how well the large number of organisations branded together under these umbrellas work as a single unit and whether or not it really is possible to offer a completely integrated and personal service to customers under these conditions across both insurance and financial services.

In addition, there are still many smaller broking firms in the market that have chosen to run a financial services arm year after year. Now, they will need to compete with the bigger players that have barnstormed their way into the market and ensure that their propositions are more effective.

While consolidators have snapped up financial services advisers, the speed at which these deals are completing is slowing down. The willingness to pay up to five times the brokerage for a firm has been stifled by the current difficult credit environment and something between one-and-a-half and two times is becoming the norm again. In turn, this means that the financial carrot being dangled in front of the management boards at financial services companies is not nearly so tempting and so they are not so quick to jump at the offers that come through the door.

It is also true that, in today's environment, insurers are not so keen to offer enhanced commissions, even to larger firms in the market, so consolidators cannot drive quite the same level of benefits from their acquisitions.

While many brokers shy away from diversifying, in some markets, operating as a combined insurance broker and financial services firm is still seen as a strong and valuable differentiator. This is the experience of Richard Blythin, financial services director at Blythin & Brown Insurance Brokers in Loughborough.

Although there are numerous other brokers and financial services companies in the area, Blythin says that he has not seen more of them come together or a greater number of brokers seek to offer financial services advice to clients, as his own firm does. He comments simply: "It does differentiate us."

Payback

This is a policy that has been in place since the firm's inception in 1969 and clearly it has paid dividends over the years, or the financial services division would have long since dwindled away. The business has gone though a variety of structural changes and now operates as a single entity and, although this is perhaps unusual, it has many advantages.

Why do so many insurance brokers offering financial services advice to their clients choose not to operate under one roof? Regulation was the first barrier to such a modus operandi, as Peter Staddon, head of technical services at the British Insurance Brokers' Association, explains: "Many general insurance brokers have some form of tie up with independent financial advisers. This is either via a sister company or with a local IFA that is totally unconnected to themselves, because in 1988 there had to be a split between the general insurance and IFA work due to the passing of The Financial Services Act, which regulated investment business."

However, now that Financial Services Authority regulation has bludgeoned its way into the general insurance scene, there is not the need for such a delineation of services and activities. Yes, each part of the business has its own regime yet, given that both are regulated, there seems little benefit in running two businesses with all of the duplication that this entails.

This is something that Blythin has come to realise and, even when operating as a single firm, he says that it is very important to make sure that activities in the insurance broking arm are not being duplicated unnecessarily in the financial services division.

Duplication

He points to training and competence regimes and says that each side of the business may take the time to implement a scheme for staff, when it would have been possible to have one that did the job for both parts of the business.

To make sure that the firm operates as efficiently as possible in light of its regulatory commitments, Blythin says it is important that, while individuals on each side may be responsible for making sure all activity is compliant, having someone that can oversee both parts is essential. He notes: "We have employed someone to pull the two halves together."

Not all brokers want to restructure their company to incorporate financial services or even to run two separate firms to cover both parts of such an operation. Instead, there are some that continue to work through partnership and this is an effective way of offering a wider service to clients.

Simon Webster, managing director at Facts & Figures Financial Planners in Kent, believes that it is easier to team up with a local IFA than to try and set up independently for regional insurance brokers looking to offer financial services advice to clients.

Asked what are the biggest management challenges in setting up a financial services arm, Webster says: "Managing advisers and dealing with financial services compliance plus liability mitigation. It is far better for a smaller broker to sub-contract this work to an existing IFA."

This approach also allows brokers to enjoy the benefits that offering such services can bring quickly and he adds: "General brokers are starting to realise that clients buy relationships. Much general insurance broking is done by phone and email, whereas financial services advice is more often delivered face to face. Brokers are starting to realise that adding face-to-face contact to good clients builds loyalty."

Webster is in no doubt that such partnerships can be hugely beneficial for both parties. So long as advisers on both sides of the fence do a good job for clients then there is no reason why they should not take up a referral to use their partners. He remarks: "IFAs are trusted advisers and if they say 'use this broker, it is good' then clients generally will. If the brokers can retrain staff to generate financial services business for the IFA then there is a real opportunity for cross-fertilisation."

For brokers and IFAs looking to create such a reciprocal agreement, it is important not to think that they can do it in an informal manner. For it to work, effort has to be made on both sides to seek out potential referral opportunities and to follow them through actively.

Taking the 'if it crosses my desk I'll pass it on approach' is not going to be good enough and there must be some thought that goes in to how client processes can be altered and how referrals will work in practice.

Despite the potential issues involved in setting up a slick and well-worked partnership, Staddon says that the results are worth it and comments: "Every problem is an opportunity and working with the IFA would allow brokers to expand their portfolios, reduce their exposures and create barriers for other brokers that may wish to attack their accounts."

Communication

Even where a broker already has a financial services arm, it is imperative that both sides of the business talk to each other and make the most out of the cross-selling opportunities that exist.

Brokers supplying commercial insurances to companies may look at offering products for their employee benefit schemes such as pensions, critical illness or income protection. There may be personal insurances that directors and employees in the firm need and for those prepared to look at the list of cross-selling opportunities it is huge and, although converting customers can prove difficult, the rewards are great.

The Alan Boswell Group in Norwich offers clients insurance and financial advice from two separate arms and says that making advisers squeeze the most of the opportunities that exist is essential.

John Whitehead, director at Alan Boswell Group, comments: "Each product offers cross-selling opportunities, whether in insurance or financial services; there really are a lot of flip sides. The commercial team will raise the subject of other products and vice versa."

Not only is this cultural but Whitehead says that there are also incentives available to advisers creating referrals for other parts of the firm.

Combining insurance broking and financial services can help brokers to build a bigger business, although there seems to be room for improvement in the way that these firms are treated by the financial product providers. Whitehead comments: "I would like to think that we have a little more clout with some providers, although I am not sure."

Both Whitehead and Blythin believe that the large providers are not good at connecting the different parts of their own businesses. As such, the advisers have a different relationship with them for different lines of business.

Blythin & Brown offers personal and commercial insurance in addition to financial services and Blythin comments: "It doesn't register that we do all three and we seem to run three separate identities." However, it seems as though some providers are working hard to rectify these problems and are trying to gain a better understanding of their intermediary partners and the type of business that they bring with them.

Norwich Union says that intermediaries are widening their business nets and are likely to expand their product offerings to attract more customers and grow their businesses. According to spokesman Damian Boylan, more insurance brokers are selling greater amounts of protection business and mortgage brokers are also selling more protection and equity release.

In addition, Boylan says that Norwich Union is receiving increasing numbers of requests from general insurance brokers and mortgage advisers to help improve the skills levels of their advisers so they can develop new business opportunities in the life and pensions market. Boylan accepts that the various parts of Norwich Union have not always recognised where intermediaries were bringing different classes of business to them, though he mitigates that a lot of work is being done to rectify that situation.

He explains: "Historically, an insurance broker would run its general insurance and life and pensions divisions separately. As a result, Norwich Union serviced the general insurance business from one side of Norwich Union and similarly NU Life dealt with the life and pensions business.

"This was inevitable due to the historic regulatory regimes whereby life and pension advisers required authorisation from the FSA and a different set of requirements applied to the general insurance advisers."

As a result of the changes in the Financial Services Authority's approach to regulation and because both investment and insurance business now fall under the FSA's remit, there is a merging of requirements. Boylan says that Norwich Union is looking to achieve new business synergies by utilising the skills and resources available from: Norwich Union Life; Norwich Union General Insurance; Norwich Union Healthcare; and Norwich Union International. He comments: "By maximising the facilities available in each of the businesses, we are looking for opportunities to work with insurance brokers and life and pensions financial advisers to gain maximum advantage for all parties."

Whether or not this pans out to make a genuine difference for regional brokers remains to be seen. There is little doubt that the larger consolidators have been quick to try to secure this advantage but, for firms further down the scale offering more than one class of business, it seems that there is still a way to go before they feel that insurers are recognising all areas of their operation, communicating with them as one and rewarding them appropriately. When they do, there will be significant administrative advantages to be won and improved processes will also drive higher volumes of sales. Achieving this is in everyone's interests.

Appreciation

Advisers selling financial services and insurance may receive better treatment in the future but this is not a reason for becoming involved in both markets. It is important to understand why offering both insurance and financial services is appealing to clients and why they look to work with the same firm in both areas.

If offering financial services, it is easier to have a one-stop shop arrangement in place, although it is important not to overestimate the value of this. The situation determines that different advisers will take care of different parts of a client's portfolio and so they will still be passed about with numerous relationships in place.

However, binding a client to a firm through more than one relationship will help to keep them there in the long term, while firms that have efficient back offices should be able to make the administrative requirements of doing business across various products much easier for the client involved. It is also true that, if a client has received good service from an intermediary, they are likely to accept a referral to use another part of the business.

Equally, if the client has a more in-depth relationship with a firm, they will feel more confident about making their case heard should things go wrong and more confident that the adviser will act effectively to sort out problems.

Service appears to be at the heart of any decision made to offer both insurance and financial services and Whitehead comments: "There are synergies that we can take advantage from while, increasingly, clients want a one-stop-shop. We have set out our stall to be more service driven, as it is difficult to compete with the likes of Tesco.com; we go for the higher end, more complex affairs and offer a very high level of service."

Offering a service-driven experience for clients is also the route that Manchester-based Buckland Harvester has taken. Paul Unsworth of Safety Solutions Consultancy & Training, comments: "Our company has used Buckland Harvester for several years. We have found the service to be exemplary, with the added bonus of being able to use a one-stop shop service with both insurance and independent financial services on offer. This has saved us both time and money and we are able to deal with a company that truly recognises that the customer's needs come first. The fact we have dealt with Buckland Harvester for so long is a testament to their excellent service."

If intermediaries can create the right service proposition then the results are obvious and tying clients in through a wider product proposition would seem to make excellent commercial sense. At a time when recession is looming, businesses are looking to cut costs and clients are reticent about spending money, providing excellent service and advice will help differentiate intermediaries from their competitors.

Equally, they must be careful not to develop new business streams if they are unable to devote the time, attention and resources to them. Staddon is adamant that brokers looking to expand should do so, though with caution. He comments: "Some GI brokers may look at expanding into the IFA arena but they should only do that if they can assure themselves that the people brought in to do this have the right credentials, have an understanding of the market and can gain access to them."

CASE STUDY - Adrian Stewart, marketing director, Buckland Harvester.

Buckland Harvester is the trading style of two separate limited companies based in Manchester's city centre.

Bucklands has had a presence in Manchester since 1920 and, in the mid 1990s, David Hudson - a general insurance broker - and Andy Burnett - an independent financial adviser - bought the firm. They focused on developing the business as a commercial broker, with Burnett providing financial advice to the firm's corporate clients.

Harvester Financial Services, a Cheshire-based IFA, was looking to broaden its expertise to its private client base and decided to merge with Bucklands, so creating a specialist composite firm.

Today, the two firms - Buckland Harvester Insurance Brokers and Buckland Harvester (the IFA division) - operate from The Parsonage in the heart of the city centre.

Both firms are regulated direct by the Financial Services Authority and a recent visit from the regulator in connection with treating customers fairly identified that both firms had procedures in place that firms of a similar size should see as industry templates.

Buckland Harvester Insurance Brokers employs 14 staff and Buckland Harvester has 10. Stewart says: "We have a highly qualified team in both firms and much of our work is introduced from the accountancy, actuarial and legal professions. I was appointed marketing director in January and, through corporate events and focused media coverage, we have become a well-known and trusted brand in Manchester.

"The IFA side of the business sits well with the insurance broking division and cross-selling opportunities have flowed mainly with corporate clients. Those offering advice on both sides of our business have made themselves aware of what colleagues do and regular strategy meetings are held to see how best we can assist our respective client bases.

"The board of directors, in the main, spans both firms. Our board is made up of mature, experienced specialists. Our chairman, Peter Linsell-Fraser, is also compliance officer for the IFA side of the business and manages the group services division responsible for human resources, systems and administration. All authorised personnel work to high compliance standards and certain regulatory and compliance matters are overseen by an outside specialist firm.

"The financial services arm operates in both the private client and corporate sectors. It is an important arm of the firm, as within it are individuals that bring other skills to the group such as management, marketing, HR, sales experience and compliance. Sound advice from the IFA arm to clients of the broking arm further cements good business relationships.

"The whole group is experiencing growth, although the prevailing climate can be seen as somewhat bleak. The improved profitability seen last year will continue this financial year after an ongoing cost-saving programme coupled with increased turnover made a difference to the fortunes of both firms.

"Our client base and professional firms who refer work to us have become used to the 'complete service approach'. This is a strong theme in our business. Clients and professionals like continuity and having experts at the end of the phone.

"While larger brokers have courted IFA firms and in some cases merged, we feel that we are one step ahead and provide high quality advice first, rather than being a faceless organisation that doesn't understand each other's objectives."