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Financial Services Company Defends Market Position with New Distribution Strategy

Background and Challenge

A New Zealand financial services business that provides life insurance and some health insurance, investments and home loan products, was facing a rapidly changing regulatory environment focused on improving the quality of agent advice. In response, the company was looking to build a distribution strategy that would protect its market position.

Approach and Recommendations

L.E.K. Consulting was appointed to help the executive team develop a robust strategic response to regulatory change in its distribution channels. The project comprised of four modules of work:

  • Assessment of the effectiveness of different channels
  • Assessment of how the New Zealand market is likely to change
  • Experience from similar change in overseas markets
  • Strategy development

L.E.K. found that in both the U.K. and Australia, regulatory change that imposed a compliance and liability burden on a fragmented adviser channel led quickly to the growth of “network groups,” which offered training, liability protection and compliance platforms to advisers. While there are differences in NZ, the proposed regulation was expected to lead to a similar outcome, and in fact, there were already signs that this was occurring. L.E.K. recommended quick action to “lock-in” as many of the loyal dealer groups and IFAs as possible into a suite of compliance solutions.

Additionally, the team recommended that the client acquire a “farming”-oriented dealer group to allow it to benefit from the customer books of the many smaller agencies expected to exit from the industry.

International experience also suggested that once the agents had fully absorbed the change and had become better able to meet compliance needs independently, the network groups would disband, but dealer groups would become increasingly important. Therefore, the client should prepare for greater integration with the larger dealer groups.

Results

L.E.K. facilitated an extremely productive process of data-led strategy facilitation that led to a clear strategic map for the business for the next 4-5 years, and gave the executive team confidence to immediately instigate a series of initiatives aimed at providing its clients with a suite of services that “network groups” were likely to attempt to offer.