We were delighted recently when Malcolm Kerr agreed to share some of his experiences from his lengthy career in financial services, along with some thoughts on the future. Gillian caught-up with him at a recent The Investment Network meeting.
Malcolm started in the industry back in the early 1970s and occupied a variety of roles but is probably best known as an Executive Director with Ernst & Young focusing on strategy in financial services. Since 2014 he has worked as an adviser to the business. More recently Malcolm has taken up a role as a Non-Exec Director position at Fairstone – a business we know well at DISCUS.
DISCUS. Malcolm, you have no doubt observed a lot of change in the industry since the 1970s but what would you say has had the greatest influence?
Malcolm Kerr (MK). The biggest change has to be the development of equity-linked Life Assurance. My first job was in Investors Overseas Services (IOS) which sold mutual funds to US servicemen across the globe. They introduced the concept of providing life assurance linked to funds rather than using traditional with profits to the UK. Companies began to form in order to get into this new market – at least 60 companies were born and later disappeared. Tax relief was available on premiums and the market grew significantly.
Ultimately, there were around 250,000 direct sales people in the market and during this era we saw the emergence of regulation. Another key change at that point was the rise of networks where commission rates could be negotiated and this encouraged many agents to become independent.
The next significant change was the move to open architecture and the emergence of platforms. Many insurance companies began examining their business models and their role changed significantly, to simply providing investment administration and tax wrappers through platforms.
However, it’s not easy to make money out of platforms and the biggest challenge to some life companies now is that their value proposition has evaporated meaning. This is because their role has changed and they are not really insurance companies any longer.
In addition to the shift to platforms many are no longer ‘doing risk’. The annuity market has changed predominantly due to Pensions Freedom and I really believe that we are on the verge of a new wave of propositions.
DISCUS. So are the ‘Robo-providers’ going to win the battle of new propositions?
MK. We definitely don’t need a juggernaut institution in this space, however the challenge has to be cash flow. It’s also a tough market as it is all about speed to market and the pace of technology development, plus challenges such as the fight to use search engines effectively in order to capture clients.
There will definitely be more losers than winners as winning new clients will cost money, so perhaps we might see partnerships forming between the life companies and niche robo players. I think that the life companies are reinventing themselves but I’m not sure into what – so perhaps that’s the next opportunity for them?
Success in the future is about trying to anticipate what customers want but that involves getting closer to them but this can be difficult as IFAs are ‘in the way’.
DISCUS. You mentioned the rise of regulation earlier – what are your views on RDR and how that has shaped the industry?
MK. I believe that the industry was already taking that direction but the introduction of RDR was a kick to move it along more quickly. Financial advisers are definitely now more professional but the challenge is still about trying to encourage people to save – you only need to look at the levels of credit card and student debt for example.
Regulation such as Pensions Freedom is also reshaping the industry. At age 65 the adviser generally kissed the customer goodbye, but now they can require advice for another 20 years or so and this advice can be quite complex. This is a huge opportunity for financial advisers and the demand is increasing but the supply is limited. I think advisers will start to recruit people in their 50’s and 60’s to help – they can give authenticity and relate to clients.
In terms of future regulation the introduction of MiFID II will also result in significant change and is perhaps being underestimated. The communication of all the separate components which clients pay for such as discretionary manager fees, platform charges, investments costs and advice will need to be made clear to clients. This requires significant administration and technology upgrades and there seems to be an assumption that it will all just ‘be done’
DISCUS. Earlier this year it was announced that you will be taking up a Non-Exec Director role at Fairstone. A member of their team recently spoke at our event which explored the theme of buying or selling an advisory business (as a result of the excellent feedback from financial advisers Dennis Reed, Group Development director will speak at two further events in London and Altrincham). What attracted you to this role?
MK. Fairstone is a very professional organisation and I like their business model of integrating and then acquiring. It carries less risk than some of the other options available.
Adviser business valuations are good at the moment and I can see a wall of money coming via DC pensions as a result of Pensions Freedom. Financial advisers are not short of clients so they have the opportunity to build really good businesses with a view to future acquisition.
Fairstone also has a great culture and I firmly believe that if the culture is wrong in an organisation then you can wrap governance around it but it’s doesn’t change the problem. One of my favourite quotes is ‘culture eats strategy for breakfast’!
DISCUS. Isn’t culture difficult to quantify?
MK. I’ve worked in organisations with a very strong culture such as EY and KPMG. For me it’s about the way of operating, always ensuring that everything is done to ensure the best possible outcome for the client. Being able to ask for help and openness and honesty are values which are really important in a strong culture.
DISCUS. What would be your one wish for the future of the industry?
MK. More diversity! It’s disappointing that the industry still lacks diversity. We are very much still white, male dominated and I would love to see that change in future.
This post was created for the DISCUS website based on an interview with Malcolm Kerr, Non Exec Director at Fairstone. You can find out more about Fairstone here ›