by David Whyte
Ginger Group and TNP have finally concluded their discussions and the merger, amalgamation, or whatever is the appropriate term has created Kepa.
The process which has been known and observed – at least from a distance by many – has created some traffic on the Good Returns website, ranging from “well done, lads” to “ just more money for the head honchos”.
Well, I guess both points of view have validity, albeit that the latter smacks a little of envy or sour grapes.
After all, the individuals involved had the foresight and backbone to form TNP and Ginger Group respectively and back themselves and their respective organisations to carve out a piece of commercial action in the shifting and uncertain market conditions which prevailed a few short years back when regulation was imminent.
Both organisations were able to convince a significant number of advisers that there was indeed strength in unity, and that there were sufficient benefits to be had within such a structure for advisers who otherwise may have struggled for survival in the face of a rapidly evolving industry.
There are turning points in every story and the moment of truth for Ginger Group, TNP, and the other dealer groups was precisely when Newpark was ostracised by its then primary carrier, Sovereign. From that event going forward, every other product provider entertained approaches from every dealer group, offered sufficient over-ride commission terms to make formation of a dealer group entity viable, and gave the competition a platform with which to attack Sovereign’s then dominant share of the IFA market.
Having worked on the corporate side of the industry, I can follow the logic from Sovereign in deciding to terminate the Newpark relationship. The dealer group entity carried no direct responsibility for lapses, had no agency relationship with any of its members, had no common systems management or shared corporate structure and Sovereign believed that it was merely ceding shareholder funds for business which would have been received anyway.
The view held was that the dealer group could, and indeed may have, merely contacted an adviser, discussed the weather or the weekend’s footy results, then claim that adviser as a member of the group and apply for the over-ride on all business produced by said adviser. As none of the dealer group over-ride was ceded to the adviser –at least none that would be admitted to – the adviser carried on with business as usual, and the dealer group became just a little wealthier as a result of the membership ‘nomination’.
Now, before any of my industry colleagues start dialling their legal eagles, I’m not claiming that this actually occurred, but I believe that this is what Sovereign believed was occurring, and that ending the relationship would make little difference to their production as the agency relationship that existed between Sovereign and the adviser was built on strong relationship foundations which would survive any such confrontation, right?
Well, almost right.
Had we been contemplating the Sovereign which took the market by storm in the 1990s, that prognosis could well have been valid. But the contemporary Sovereign of the more recent past is a different entity altogether.
As a bank-owned entity the criteria, drivers, and cultural foundations were remote and vastly different from those of the company’s founders – not better, not worse, just different.
The basis of Sovereign’s early day success was the attention paid to independent advisers and brokers – those who did not wish to be tied to one provider and that provider’s product range. Even before the ASB arrived on the scene to buy Sovereign, the distribution strategy had moved beyond the IFA channel, and other product providers saw opportunity in the multichannel distribution strategy Sovereign adopted in the mid 1990s.
In these circumstances, Sovereign’s share of the IFA market was under attack and while the in-force market share held up a new metric entered the analysis for consideration. The company’s new business market share percentage was lower than its in-force market share percentage – with the inevitable conclusion that the company had reached maximum market penetration deploying the current strategy, so what to do next and where to go for more new business?
The dealer group solution seemed obvious but the distraction from the shareholder was the sleeping giant represented by the bank’s client base from whom new business could be extracted at much lower cost than pandering to the whim of the dealer group which in any event was not discouraging business being placed elsewhere.
So the relationship was duly terminated, and the competition climbed aboard the dealer group vessel enthusiastically, and buddied up with whatever combination or commercial association of advisers came along.
TNP was an early entrant and quickly established the concept of adding value by guiding advisers to higher more profitable productivity gains. Ginger Group emerged from the negotiations between Kevn Smee’s Brokers Independent Group (BIG) and Maurice Trapp's Minerva group and Professional Investment Services from Australia.
PIS had never quite achieved the success it had in Australia, so the merger made perfect commercial success, particularly in the light of failure previously to conclude a deal with Newpark. Both BIG and MTG brought immense experience and energy to the membership, and the merged entity, along with its compliance capabilities quickly gained momentum.
Yet still Sovereign refused to entertain a relationship with any dealer group, and its market share continued to be eroded by the dealer group structure which was evolving rapidly to offer advisers a relationship based on a shared understanding, common goals, and added value from advisers to advisers. Despite best efforts to position themselves otherwise, product providers have different pressures, different priorities, and different objectives, all of which are not aligned to those of the distribution network from which they seek new business.
So Ginger Group flourished, TNP continued to advance, and at some point the conversation about joining forces, rather than competing for the same advisers’ loyalty, was ineviatable
So I say good luck to all the Directors and founders – the future looks bright and full of promise.
But what of the future?
Well, I believe there are a number of critical areas for the new entity – and other dealer groups for that matter - to contemplate.
Just as the industry is evolving and developing, as witnessed by the advent of regulation, the rationalisation of product providers, and the recent nuptial announcement from Ginger Group and TNP, so the dealer group entities need to evolve and develop.
Perhaps some of that evolution can be facilitated by closer attention being paid to the aforementioned points.
David Whyte was the general manager of AIA New Zealand and chief executive of the Ginger group. He know runs DCW Consulting.
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