You can't make much sense of the UK retail financial services market and the changing role of marketing in it, past, present or future, without considering the role of intermediaries – and, specifically, intermediaries giving one sort or another of financial advice.

Over the years, intermediaries like these have played a central role in most sectors of the market, the only major exception being retail banking.¹ And as a result, the defining relationship at the heart of most of personal finance has been a triangle, in which the three corners are represented by manufacturers, intermediaries and consumers.

Those with any knowledge of game theory will react with immediate suspicion to any sign of a triangular relationship. A key principle is that in any game where three parties are involved, two will usually gang up on the third. And in a market where consumers don't have much power or authority, and where costs and charges have historically been opaque, many won't hesitate to take a view about who'll be doing the ganging up – and on whom.

We'll come to that. But let's start with three general points about the intermediated shape of the market.

1. In principle, there's nothing very unusual about it. You could say exactly the same about the way that most other sectors of the consumer economy are organised, except that instead of the word ‘intermediary’ you'd probably use the word ‘shop’.
2. Even within the most intermediated sectors, there are, and always have been, firms that distribute directly to their customers. For example, ever since the days of the famous ‘Man from the Pru’ (Prudential), who came round on his bicycle to visit his policyholders and collect their premiums every week, a number of so-called ‘industrial branch’ insurance, life and pensions companies were for many years, as we now describe it, ‘vertically integrated’, playing the role of both manufacturer and intermediary.
3. And when there are triangular relationships between provider, intermediary and consumer, they can vary enormously just as they can in other parts of the consumer economy, and don't lend themselves well to generalisation. Imagine an analogy from a completely different industry – say, for instance, bread and baking. All sorts of firms bake bread, from machine-made white sliced to hand-crafted sourdough; all sorts of ‘intermediaries’ make it available to the public, from supermarkets to specialist bread shops to sandwich shops and restaurants; and all sorts of people buy it and eat it. There's at least as much variation in the world of pensions, or insurance, or mortgages, and this chapter will over-generalise about ‘intermediated’ markets – it won't be difficult to find exceptions to almost every point it makes.

The first question about intermediated markets is why they're structured in this way at all. On the face of it, the intermediary is just an unnecessary complication, a link in the value chain that could perfectly well be dispensed with. Why don't more product providers deal more directly with their customers?

Apart from the fact that some indeed do, the principal answer to this question is one of those sweeping over-generalisations: on the whole, intermediaries have established their position in the value chain on the basis of their ability to add value to both the other parties involved. End-customers perceive that intermediaries help them find a way through the complexities and technicalities of confusing and worrying market sectors. And product providers rely on them to help them find customers, and then sell their products to them. In a sales-focused industry, they've been the best salespeople.

As we said back in the first couple of chapters, the industry's enthusiasm for selling largely explains its lack of enthusiasm for marketing. Sales and marketing can and indeed should work seamlessly together, but more often than not they're seen as alternatives. When it comes down to it, for many product providers it's a choice between business models: do you spend the available margin on motivating salespeople (that is, more often than not, intermediaries) to sell, or on encouraging customers to buy?

As a result, it seems to us that the industry's reliance on sales-oriented intermediation has largely acted as a brake on marketing, at least as far as end consumers are concerned. But as we shall go on to discuss in this chapter, we think that intermediation is changing – both in itself and in the relationships between intermediaries and manufacturers – and that as a result of these changes we're evolving into a very different kind of intermediation that is much less sales-driven, and where marketing to end consumers, both on the part of manufacturers and indeed on the part of intermediaries themselves, has a much greater role to play.

THE INTERMEDIARY MARKET TODAY

The UK intermediary market, which dominates the distribution of pensions, investments, life assurance and mortgages, is a very odd place.

In a country with an adult population of around 50 million, it's odd that a mere 24,000 or so financial advisers should maintain such a tight grip on the distribution of regulated financial services. The intermediary channel still accounts for something like 70% of mortgages, and similar proportions of investments and life assurance policies.

(To put the same point the other way round, it's odd that by contrast, the country's largest consumer-facing financial services providers, the banks, have so little business in these areas. For example, in continental European markets like Germany and Italy banks have hugely dominant market shares in the field of investments, while in the UK they are minor players.)

It's odd that the cost of the financial advice process required by the regulator is so high that by common consent it's only sensibly affordable for something like the most affluent 10% of the population.

Especially in view of these cost pressures, it's odd that advice is still delivered almost entirely face to face, and not either remotely (for example by telephone) or digitally. One to one, face-to-face advice is the most time consuming and therefore expensive way you could possibly distribute financial services – surely it can't make sense to rely on it so heavily?

It's odd that the number of financial advisers has fallen so sharply in recent years, from well over 200,000 just 30 years or so ago – especially during a period in which prosperity has increased and, crucially, individuals have experienced an ever-increasing obligation to take responsibility for their financial well-being.

It's odd that today's advisers almost all work as either self-employed individuals or in tiny micro-businesses employing small handfuls of people. Businesses that may look substantial from a distance, like Openwork, Sesame, Tenet, Intrinsic and St. James's Place, turn out on closer examination to be structurally much looser than they appear. Most are so-called ‘networks’, providers of centralised services of one sort or another to their huge numbers of micro-business ‘members’.

It's odd that there are no specialist advice brands with any kind of significant consumer awareness.

It's odd that while the coming of digital has had a big effect on advice firms' processes, so far it has had very little effect on the structure of the industry. You might imagine there would be close parallels between financial advice and a longish list of other sectors made up of small firms that have been completely transformed, and not usually in a good way, by digital – examples like perhaps travel agents, recording studios, bookshops, even opticians. But so far, advice remains remarkably untransformed.

And finally, it's odd – at least at first thought – that very large and sophisticated product providers, including the large majority of the country's life companies, asset managers and mortgage lenders, should have been ready for so long to depend on such extraordinarily fragmented, mostly amateurish and ramshackle distribution.

Unpicking all the reasons why the distribution of regulated financial services is the way it is in the UK would be a big, complicated task some distance beyond the scope of this book. We'd need to consider the evolution of the industry over a long period of time: it is what it is today because of what it used to be in the past. But – again as a sweeping generalisation – a single key reason stands out: over the years, this has been a sales-driven industry, where successful sales have been rewarded by commission.

Commission-based selling is a tough way to make a living, and not many people can do it well. It's also a relatively solitary way to make a living: good salespeople need some admin support and backup, but they don't generally fit well into corporate structures, even if only because they want their remuneration to be based on their own personal performance. And needless to say it's a role that requires a great deal of personal, one-to-one contact with clients – very little of it can be done remotely or online.

Factors like these go a long way to explaining why the industry grew up as it did. There's one key reason why there are so few successful advisers, why they tend to work on either a self-employed or micro-business basis, why so much of their work is face to face and, indeed, why these people still command such dominant shares of their key market sectors: these are all important characteristics of commission-driven sales. And for about 50 years, from roughly the mid-1960s until 2014, the large majority of financial advisers were remunerated almost entirely by commission.

This is not to say that commission was ever the only club in the product providers' bag: they always had other means available to seek intermediaries' support. With commission rates tending to converge, and also with the regulator starting to display an increasing interest in the quality of the advice given and the suitability of the products recommended, these ‘other ways’ increasingly included a number of forms of intermediary marketing. Building unique benefits into the design of a product, for example, has often proved an effective way to motivate advisers to recommend it over its competitors. And there were opportunities to achieve competitive advantage to be found across all of the seven Ps – Product, Price, Place, Promotion, People, Process and Physical Evidence, as you'll doubtless remember.

Some of the intermediary marketing strategies adopted by providers worked powerfully to the benefit of consumers, but it has to be said that the benefits to consumers were often marginal and the benefits to advisers frequently much greater. Sometimes this was simply because the benefits on offer were designed with advisers' needs uppermost in mind: all other things being more or less equal, for example, it's not unreasonable for an adviser to prefer to recommend a product from a provider known to offer particularly smooth, efficient, error-free administration. On other occasions the benefits in question worked ostensibly to the benefit of the adviser's client, but actually served to provide justification for the advice, in case it was ever needed. Critical illness insurance, for example, went through a rather silly period in which providers offered to insure longer and longer lists of increasingly obscure conditions, not really because anyone was very likely to fall ill with dengue fever but more because an adviser recommending that provider's product couldn't be criticised if someone did.

A great deal of marketing communication was also deployed to support intermediary distribution. Much of it of course targeted intermediaries themselves, and an extraordinarily large and vigorous sector of trade media emerged to soak up the intermediary advertising budgets of the dozens of providers vying for their attention.

Some firms also spent large amounts of money targeting intermediaries' end-clients, on the basis that intermediaries were more likely to recommend firms whose names were known to their clients (and it was even better if from time to time a client actually requested a product from a particular provider by name). From the point of view of advertising agencies creating these campaigns, though, it's regrettable that no hard evidence to prove the effectiveness of this strategy has ever become available.

Meanwhile, in one large market sector, intermediaries steadily lost market share from the mid-1980s onwards. This was general insurance – motor in the first instance, and home and other smaller categories like travel and pet insurance subsequently. Their market share was taken by a rapidly growing group of telephone-based direct insurers, led by Direct Line, leaving brokers in a position of strength only in the small non-standard sector. As we argue elsewhere, this was one of financial services' greatest marketing triumphs, with propositions that competed effectively across all seven of the Seven Ps. But elsewhere, it was more or less business as usual for another 30 years.

Looking back on this lengthy era, it's hard to know quite what view to take. There's no doubt that many consumers were and still are well-served by their financial advisers, who helped them maintain their personal finances in very much better shape than they would have done otherwise. It's also true that even more consumers believed they were well-served by their financial advisers and expressed high levels of satisfaction when asked about them, which can be a very different matter: one of the key skills of the best salespeople is to build confidence among their clients.

On the other hand, it's also true that a lot of consumers were badly served by advisers, who pocketed unjustifiable quantities of their money in return for questionable advice, often involving the recommendation of not-very-suitable products paying high commissions.² Overall, the commission era was one in which end-customers paid very high charges to providers and advisers alike, and there was very little price competition in any part of the market. Those suspicions among game theorists that the market basically involved providers and advisers ganging up on clients seem widely borne out by the facts.

And of course while many advisers' clients received poor value for money, a much larger number of people received either no advice at all, or very little. Not unreasonably, the advice industry has never had much interest in serving individuals with little money.

In the end, the FSA's³ concerns about the danger of commission bias, and more generally about the quality and suitability of advice, led to the package of reforms required by the Retail Distribution Review (RDR) and implemented at the start of 2014. The most notable of these was the banning of commission on investment products, and its replacement with so-called Adviser Charges to be paid by the end-client.

Some have argued that even this hasn't really made much difference. They point out that the levels of Adviser Charges are very similar to the average levels of commission paid previously (typically 3% of the value of the investment up front, and then an ongoing charge of at least 0.5% p.a., and often more). And they also point out that clients' awareness of these charges remains low, mainly because they don't actually have to pay these amounts personally. The rules allow so-called Provider-Facilitated Adviser Charging, which basically means that the charges can be deducted from the value of the client's investment and paid to the adviser by the provider. Clients typically see no more than a line of detail in a statement that they probably don't read anyway.

All this is true, but it misses the point. The point is that at a stroke, by switching the responsibility for remunerating the adviser from provider to client, the new rules removed the principal lever that providers had used to manage and control the adviser market. In fact, forget ‘levers’ – it was as if the steering wheel had been removed from the car.

So far our story has focused on the role of sales commission in shaping the nature of the intermediary market, and maintaining a sales-driven model in which individual advisers took control of their remuneration effectively by choosing what to sell and to whom.

But in fact its abolition coincided with other important developments that also played an important part in helping a new financial services distribution framework to begin to rise, like a slow-motion phoenix, from the ashes of the old one. These developments can be found in all of the segments of what used to be a PEST (political, economic, social and technological) analysis, and has now expanded to become a PESTLE (with the addition of legal and environmental factors):

1. In parallel with the RDR, the FCA has become increasingly concerned about the quality, and particularly the suitability, of investment advice. This concern has led to new requirements for a much more rigorous and wide-ranging process, exploring the client's needs and circumstances in more detail and analysing the investment marketplace more thoroughly – changes that, while well-intentioned, have inevitable consequences for the cost of the advice to the client, and also for the depth of resource needed by the firm delivering it.
2. At the same time, in the Technology quadrant, a wave of innovation has recently been transforming the basic processes of advice. Perhaps the single most important of these is the introduction of investment platforms, one-stop digital services where advisers can buy, sell and manage all their clients' investments and which allow for much simpler, more effective and lower-cost control of clients' portfolios.
3. In the Political quadrant, 2014's Pensions Freedom reforms dramatically changed the advice needs of people at and after the point of retirement, especially the steadily growing number with some or all of their retirement savings in DC pensions. Whereas previously most had required little more than a relatively simple one-off annuity purchase, the new rules allow everyone to remain invested indefinitely through their retirement years – and therefore raise all sort of big and hugely important issues about what those investments should be. No single rule-change has ever done as much to increase the need for ongoing, rather than transactional, advice.
4. At almost exactly the same time, important rule changes affecting workplace pensions have also come into effect. The auto-enrolment initiative has resulted in a huge increase in the number of people contributing to workplace schemes, and therefore to a huge new potential market for advice in the workplace – a market further stimulated by new rules enabling employers to arrange advice for their employees on a tax-privileged basis, although at the same time arguably somewhat clouded by the fact that the majority of these new pension investors are earning, and contributing, far less than the minimum level likely to attract most advisers.
5. And as chance would have it, at much the same time again, a large proportion of the principals in small advice firms are more or less simultaneously reaching the point where they're ready to retire.⁴

Coming together over a short period of time, this complex combination of factors is bringing about major change in the advice business, to reset relations between advice firms and providers and to trigger a period of steady but very significant change in the way that the industry engages with consumers – not least in the nature of its marketing activities towards them.

Inevitably these changes are taking some time to work their way through the system, so at the time of writing it's difficult to predict the shape of the industry in, say, two, five, or 10 years. Still, bringing together some current realities, some clearly established trends and a little bit of crystal ball-gazing leads to some thoughts on how the intermediated sector is developing. From this, the changing role of marketing will emerge.

1. The advice industry is rapidly consolidating. No doubt some of the old-style cottage-industry micro-businesses will survive, but on the whole advice is now becoming too difficult, too expensive and too risky for very small firms to provide on their own.
2. High-net-worth (HNW) individuals will get better advice, better service and better value. The RDR works entirely to the benefit of people with money. Much greater transparency about charging, the requirement to provide ongoing service in return for an ongoing charge, higher professional standards and more robust advice processes all work to the advantage of this group. What's more, almost every advice firm wants to work for these people: gradually competition will drive quality up and prices down.
3. Much less of the whole advice process will happen face to face. Technology has arrived in the nick of time to tackle the horrendous cost of delivering advice. We're cautious about the potential of 100% digital (or even 90% digital) robo advice, but we're in no doubt that much of the process can be digitised and handled remotely.⁵
4. It'll all get better and better for DIY investors. It's already pretty good for the relatively small number of highly engaged individuals who enjoy actively looking after their personal finances. They have a large number and wide range of largely digital services already available to them, some of which meet their needs brilliantly while others offer exceptionally low charges. (There aren't quite so many that do both.) With technology becoming more powerful, and with price pressures increasing across the value chain, the potential is for even better services at even lower cost.
5. For the majority, the workplace will become the main focus of their financial lives. Actually, that's not expressed very well. In purely practical terms, it's nothing to do with the physical environment of the workplace, and most people will look after their finances at home. But for many, the workplace pension will act as a core financial relationship, and will also provide access to an online hub, or platform, that can broaden the relationship (and also, in many cases, a source of employer-subsidised advice).⁶
6. The boundary between ‘regulated’ and ‘non-regulated’ advice will become increasingly blurred. The EU's PSD2 (Payment Services Directive), implemented in January 2018, enables consumers to choose, if they wish, to share their banking data with other financial services firms. For advice firms, in particular, the opportunities of really understanding their clients' financial lives and advising on the basis of far deeper and more insightful analysis is potentially transformational.
7. Outside the HNW and hobbyist markets, the separation between ‘provider’ and ‘adviser’ will largely disappear. As providers acquire advice arms, this is already happening. Again this is mostly about money: increasingly, there just isn't enough margin in the process to provide worthwhile revenues for entirely separate manufacturing and distribution businesses. This will often mean that previously ‘independent’ advisers will have to make the move to ‘restricted’ status, but the truth is that hardly anyone cares about this except a dwindling number of independent advisers.
8. The non-advised, D2C market will grow, and will provide much simpler and lower-cost solutions than anything currently available (even from Vanguard). We fervently hope this is the biggest and most transformational item in this list of eight points. We strongly believe that over many years, the industry made an entirely conscious choice to achieve such complexity that it became frighteningly difficult for most consumers to make decisions and proceed without advice, and so we naturally believe equally strongly that when circumstances change, the industry can make a similarly conscious choice to do the opposite. Currently, the big, inspiring, agenda-setting example is auto-enrolled pensions. Drawing on key concepts from behavioural science, the success of these has much to do with the fact that individuals can expect good outcomes without having to engage with the process or make decisions or choices in any way at all – they can simply default their way through to a satisfactory solution. By comparison, all other direct investment services so far launched are too demanding and too complex (and, as a result, usually too expensive).

We're aware that this chapter, while ostensibly about intermediated financial services as a whole, has focused very largely on investments. The two other main categories where intermediaries play a major role are mortgages, and life and health insurance. The mortgage sector, in particular, has been affected by its own regulatory interventions, notably 2014's Mortgage Market Review (MMR); life and health insurance have been affected by regulatory change to a much lesser extent, being excluded from the scope of the RDR. Nevertheless, even if the particular combination of PESTLE analysis changes may differ, most of the seven points above will still apply:

• Consolidation will happen across the intermediary sector, not only among investment intermediaries;
• High-net-worth individuals will be better served with more tailored solutions that better meet their needs, and with a greater emphasis on ongoing relationships rather than transactional advice;
• There will be a much greater digital component to mortgage and protection advice;
• DIY customers will have better access to a wider range of products and to online tools to support their decision-making;
• Employer-provided portals and platforms will offer mortgage and protection propositions, ad will achieve an increasing share in these sectors too;
• The same blurring of boundaries between provider and adviser will certainly appear in protection – less so in mortgages, where lenders are much less involved in vertical integration (although you can of course argue that those with branch networks are in a sense ‘vertically integrated’ already);
• The non-advised D2C market will grow, providing extremely simple mortgage and protection solutions at very low prices.

In the unlikely event that all of these predictions are accurate, the big question is what it will all mean for marketing. In this chapter, the focus of this question falls on marketing addressed to intermediaries.

THE NEW INTERMEDIARY MARKETING

Marketing directed towards intermediaries is changing fast, and it will continue to do so. Two of the seven developments outlined above will bring about the biggest changes:

1. The process of consolidation in the advice industry will move the main marketing target away from individual advisers, most of them owner-managers in micro-businesses, and toward people in decision-making roles in bigger businesses. Consolidation, after all, results in large part from the fact that the advice process as defined by the regulator is increasingly too difficult and too complex to be left to the frontline adviser, and should be delegated upwards either to Head Office teams and/or to third-party partners of one sort or another: inevitably this must mean that this much smaller number of more sophisticated decision-makers becomes the primary target market.
2. Similarly, the drive towards vertical integration will increasingly reduce the requirement for any kind of marketing (or any kind of external marketing, anyway). When, say, a life, pensions and investments company acquires an advice capability – or, vice versa, an intermediary business creates a strategic partnership with an investment provider – then the aim will invariably be to provide product solutions that are integrated with the advice process. At this point all sorts of operational and business integration issues arise (and must be tackled under the extremely watchful eye of a regulator who is distinctly dubious about such arrangements), but marketing activity, except in the broadest sense, no longer has a role to play.

The marketing consequences of these two trends are already clearly visible, particularly in the dramatic reduction in the volume of marketing communication addressed to individual advisers. Amazingly, most of the titles filling that magazine rack full of trade publications still exist, but it's hard to understand how some are carrying less advertising in a quarter than they used to carry in a week.

This is not to say that at the time of writing, providers have completely given up on the frontline financial adviser. For one thing, the process of consolidation is still far from complete, and there are still several thousand small firms where the business owners and decision makers are providing frontline advice. And for another thing, while the overall responsibility for product selection increasingly lies elsewhere, individual advisers often still retain some freedom to make the final selection from a buy list.

All the same, there's no doubt that expenditure on marketing to individual advisers has fallen sharply, and the emphasis now falls much more heavily on a combination of low-cost digital activities, and live events that can be closely co-ordinated with sales. At any given moment in the working day, you can be sure there are groups of advisers gathered together in the conference suites of hotels on city ring roads around the country, nibbling croissants or canapes at events at which experts from, or at least paid for by, product providers hold forth on topics like the outlook for the markets, the implications of Brexit, what advisers need to know about new data regulations and (particularly if addressed by one of your authors) how to build advice brands.

But while providers⁷ have cut back their marketing to frontline advisers, they're absolutely carpet-bombing their relatively newly constructed and shortish lists of decision-makers – people in the Head Offices of advice firms, members of investment committees, discretionary fund managers, platform fund selectors. To be on these lists means never having to buy a meal or a drink ever again – and to be so saturated with content marketing initiatives of one sort or another that if you spent every minute of every day reading the material that's intended for you, you wouldn't have got through half of it by bedtime.

This isn't, needless to say, just about communication, although there is a colossal amount of it. It's about a 360-degree marketing effort that starts with product, and reaches out to these individuals from every angle. And when most sectors of the provider market remain as extraordinarily overcrowded as they still are today, the total volume of activity is simply enormous.

Some sectors have become less crowded recently. The number of life and pensions companies is already much reduced – counting only those that are open for new business, for example, the number is down by 75% in 30 years. The number of mortgage lenders has fallen less dramatically, but is still much reduced – the number of building societies, for example, has fallen by just over half since 1990, largely as a result of the financial pressures that have so greatly thinned their ranks. In asset management, though, a combination of fat margins, low overheads and low barriers to entry have kept the forces of consolidation largely at bay – at the time of writing there are over 530 authorised managers of ISAs in the UK, for example – and with the regulator having recently started to take an extremely critical look at the level of charges, and the value for money, offered by asset managers, you can't help suspecting that the Golden Age is now drawing slowly closer to the end.

This will be a good thing for everyone except the fund managers on the wrong end of consolidation programmes, and arguably the providers of meeting rooms in ring road hotels, who will find the number of bookings for meeting rooms and croissants reducing inexorably.

Meanwhile, the problem as far as marketing is concerned is not so much the industry's overwhelming tendency towards herdlike behaviour, but more the sheer size of the herd. It made sense, for example, with the coming of Pensions Freedom, for asset managers to respond to the new need for income-producing decumulation funds – but what makes less sense is the fact that in the last couple of years we've seen the launch of over 300 of them. In the Innovation category in the 2016 Financial Services Forum Marking Effectiveness Awards, discussed at some length in Chapter 19, all but two of the entries were to do with funds like these: it would be fair to say that after reading them all, the judges' main reaction was confusion about which particular multi-asset strategy belonged to which.

The sheer size of the herd is fairly awesome when it comes to new product development, but even more so when it comes to other forms of marketing – perhaps most of all content marketing initiatives. To say, for example, that asset managers publish investment-related White Papers daily would be a huge understatement: hourly would be closer to it. And of course content marketing uses other media too. There are literally thousands of interviews with fund managers on YouTube, and not many fewer podcasts on iTunes – and the consequence of this vast oversupply is clearly apparent, with most of those videos clocking up no more than a few hundred views, and many only a few dozen.

But while a fair amount of this material is more or less relevant to its target group, very little of it reflects the three other key attributes for marketing success. Very little of it stands out and achieves really exceptional visibility; very little of it is differentiated from all the rest of it, or really contributes to a differentiated sense of what the firm in question stands for; and very little of it is part of a consistent, integrated programme intended to build specific, defined perceptions and so lead to specific, defined behaviours over time.

In short, what we think is most needed in provider-to-adviser marketing is a much stronger big-picture focus on brand differentiation. Most firms adopt many of the trappings of brands – consistent typography, colour palettes and the rest of it – but very, very few project any distinctive sense of who they are, what they're for and how they're different. As a result, the market is densely and confusingly crowded with vast amounts of activity, but there's very little trace of strategy to be seen.

In this respect, although the implementation is entirely contemporary, the underlying strategic imperative of the new intermediary marketing is a much more traditional one. As marketing plays an increasingly central role in orchestrating relationships between intermediaries of one sort or another and providers of one sort or another, it must evolve from the much more limited ‘marketing services’ role where its main purpose was to provide material to support commercial relationships based on commission and managed by salespeople. The first responsibility of intermediary marketers going forward is to take responsibility for defining, developing and maintaining their organisations' intermediary brands.