With this week’s announcement of the sign-off of AMP’s bid by AXA’s independent directors, the group of major wealth management players finally seems destined to become a family of five.

While consolidation and rationalisation in and of itself can be a good thing, the big question now is what the future will hold for the smaller, independent players in the industry.

Indeed, there have been quite a few big names that have speculated on the demise of the independent market, based on the rationale that the independents will no longer have the size or scale to compete with the majors.

My main issue with this line of thought is that I believe it dismisses the innovative potential of the independent planning groups.

While it is true that size has its advantages (think buying power, scale, and efficiency), if you look at practically any industry, it has almost always the smaller, independent players that, partly out of desire, and partly out of need, have led the way with newer and better products and services to allow them to compete with the size and scale advantages of the majors.

Indeed, the origin of the modern day practice stems from when the institutional insurance brokers were pushed out into their own practices, spawning a whole range and diversity of businesses over time.

This resulted in many different innovations in terms of service approaches, product delivery, branding, marketing, tools, and the platforms that we take for granted nowadays.

But if you are an independent player, in what areas will the latest round of innovation be fought? Three areas come to mind:

1. Service Delivery

In an industry where the majority of client interactions are still completed face-to-face, some groups are already looking at different and more efficient ways of delivering their services. Face-to-face will never go away, but new methods of delivery, such as improved use of the online services, will complement and streamline the process for both you and your clients.

2. Value Propositions

The general value proposition of financial planning has remained relatively unchanged for better part of the last twenty years. In order to truly differentiate yourself from the majors and capture the interest of prospective clients you will have to create unique propositions that go beyond the run-of-the-mill “we grow your wealth”. This will not be an easy one, as a very established mindset exists in the industry. But unless clients can see that what you offer is something the majors cannot, there is no reason for them to go “off the beaten track”.

3. Practice Efficiency

While the majors rely on their scale to be their source of efficiency, competitive pressures will mean you will need to develop or adopt new tools and processes that will improve the efficiency and competitive performance of your practice against the majors. Size works against the majors in this case, since, as an independent, you have the flexibility and responsiveness to quickly test new ideas and solutions that can put you back on an even keel with the larger players.

These are not small challenges, but if history is anything to go by, then we haven’t seen the last of the independent market yet. Businesses have always had a way of adapting to change and challenges, and I’m sure we’ll be seeing many new and exciting developments over the next few years.

So, the next time you see someone talking about the demise of the independent market, remember that it’s not a foregone conclusion, and it could be the back of your head they’re looking at as your business zooms past theirs.

Until next week,

Lap-Tin