Over the past few years, a silent revolution has been brewing in global consumption patterns. The revolution has also reached Israel, and it has forced producers, service providers and marketers to be more creative and to rethink previous assumptions. In Hebrew, the term is “Haachada”; in English it sounds a bit better: “Consolidation”.
It’s everywhere and it has become second nature to all of us. Once we bought food based on the expertise of the seller: Meat from the butcher, vegetables from the greengrocer, bread and baked goods from the bakery and basic food items from the local grocery store. However, today we want a “one-stop shop” that sells a broad range of products that takes a minimum investment of time on our part. Another example can be seen in the telecom market - we used to purchase individual services from various suppliers: Fixed line, mobile, internet infrastructure, internet content, cable TV, international long-distance, etc. Today everything is bundled into a single package at a competitive price from a single supplier.
A similar process is underway in the financial industry, or more specifically, the consumption patterns of financial services. The Israeli consumer, contrary to what is commonly believed, is becoming more and more educated. In the past, Israeli households purchased financial products from various salespeople, providers and management platforms: Pensions from insurance agents, short-term savings through mutual funds or portfolio advice from a bank, medium term investments through provident funds sold by various marketers, life insurance through an insurance agent, etc. Today, we are witnessing a change in the market. This shift is being driven by the powers of the market as well as regulatory changes that are requiring service providers to look at the total picture of the client before making any recommendations, and to shift from commission-based compensation from the sale of products to fee-only compensation. We are not far from the day when the profitability from the sale of products will be slim to none, an event that will force all financial service providers - agents, in-house sales teams and advisers at the banks to change their business models and to think of new models, based on one-time or ongoing fee-only advice paid by the client.
That said, it is not just the shift to consolidation that is forcing the change in the business model. Consumers are prepared to pay out-of-pocket fees for advice or added-value services in exchange for getting a view of the entire picture of their financial assets and liabilities, as opposed to a focus on a single area. Consumers want access to the entire range of financial solutions available in both the domestic and international markets. Consumers expect financial providers to have a broad range of knowledge and abilities that will provide solutions to a wide range of needs in a market, with ever changing regulation in taxation, savings, retirement and more.
The revolution is a threat to service providers who cannot identify the changing demands of consumers, and who will continue to act as if nothing has changed. One day in the not too distant future, many of them will find themselves with fewer clients, significantly lower income per client and with greater demands for service than in the past.
Of course, there is a huge opportunity for those service providers who strengthen their professional knowledge, use advanced tools that are transparent to the client and who have expertise and abilities in multiple areas that can answer the wide ranging needs of clients. These providers can be exposed to educated, high net-worth clients who can value and pay for exceptional service. The path to this opportunity lies through continued knowledge gathering, professional training and the broadening of the range of services offered to clients. Additionally, there is a need for qualified professionals who are not currently part of the various financial advisory profession, who can specialize in financial analysis and who can support the activities of financial service providers to the end user.
For clients, this is nothing less than a breakthrough. For the first time, clients will be exposed to services that were previously available only to a very small number of consumers, and will allow households that are not in the top tier of wealth, to receive comprehensive financial services under one roof, through capable professionals who are dedicated solely to the benefit of the client.
The author is the chairman of the Union of Financial Planners in Israel and the CEO of "The Service Financial Planning (F.P.) Ltd".