Product commoditisation is now endemic across financial services. Like knotweed, it spreads everywhere and it does nothing but harm.
I see evidence of this unwelcome trait every day of my working life as readers regularly contact me annoyed that their loyalty has been abused by their insurer (usually) or other financial product provider.
This manifests itself in car or home insurance premiums higher than those if they approached their insurer afresh as a new customer. Or in premiums that are far more expensive than equivalent cover offered elsewhere, usually through a comparison website. Perversely, the more loyal they are, the more financially disadvantaged they become.
Of course this is outrageous, but no one – other than angry consumers – seems to want to change the status quo. Insurers are happy to fleece long-standing customers rather than reward them for their loyalty. More one-year stand than a relationship for life. Shameful.
OK, Aviva boss Mark Wilson – “Mr Rent-a-Quote” – keeps promising to look at the issue (a pilot is in progress which looks at how long-standing customers might get better treatment), but I am not hopeful. Indeed, Aviva is as parasitic as the rest, evidenced by the trick it has just pulled on some of its health insurance customers. It has been busy hiking premiums for customers who pay for Healthier Solutions cover annually rather than by monthly instalment.
The hike, it says, is to remove the “discount” that immediate payers enjoy over regular payers. What utter garbage. It is the regular payers who quite rightly pay a premium for getting 12 months to pay for the cover they receive immediately. A decent insurer would have removed this premium rather than hit annual payers with a price hike.
Of course, Mr Wilson has hungry income-obsessed shareholders to appease. Profit before customers. Profit before loyalty.
The regulator’s answer to the shenanigans of the insurers is to ensure people are prompted to shop around – by being given details at renewal of their existing premium and the new quote. It seems to have concluded that insurance is a commodity product and customer loyalty is a factor it should not take into account when laying down the rules insurers should obey.
Revenue from comparisons
Comparison websites are happy for commoditisation to thrive. After all it is in their financial best interests. The more switching there is, the more revenue they generate.
There are small pockets of the financial services industry where loyalty is still valued. A handful of building societies reward long-standing customers with special one-off deals or discounts and they seem to be benefiting from such a stance – the likes of Nationwide and Coventry.
The value of loyalty shines brightest in the world of independent financial advice. Individuals who are looked after by a financial adviser long term reap the greatest benefit. I have been saying this for years, but it has been difficult to quantify the benefit, other than by the odd case study. Thankfully we now have the evidence.
Financial advisers buck the trend
A report recently published by the International Longevity Centre quantified the value of financial advice. It did this by looking at two sets of people who received advice between 2001 and 2007 and discovering how much wealth – cash and pensions – they had accumulated between 2012 and 2014. It then did the same for equivalent peer groups who started with similar levels of wealth, but received no financial advice.
The “affluent but advised” group accumulated 17 per cent more in liquid assets than the “affluent but non-advised” investors. They also built 16 per cent more in pension wealth. The “just getting by but advised” group fared even better than their non-advised counterparts. They built 39 per cent more in liquid financial assets and 21 per cent more in pension wealth.
Furthermore, nine out of every 10 people were satisfied with the quality of advice they received.
The report, sponsored by Royal London, should be read by every financial adviser in the land. It is a great marketing tool for the value of financial advice. It also identifies ways in which advice can attract a wider audience.
Key is the advice industry doing more itself to convince consumers of the potential financial rewards they might enjoy by taking professional advice. In other words, a little more self-promotion is the order of the day.
The report also concludes financial advice would reach a wider audience if financial capability improved, driving an increasing number of people to seek advice. More trust in the financial advice sector generally is vital as well.
In addition it highlights triggers – such as auto-enrolment, the pensions dashboard and pension freedom – which might persuade more people to hunt down financial advice.
This value of advice report proves loyalty can still reap its just rewards in financial services. Maybe Aviva's Mr Wilson et al plus everyone employed by the Financial Conduct Authority should take time out to read it. Loyalty rocks. Commoditisation stinks.
Jeff Prestridge is personal finance editor of the Mail on Sunday
