Lloyds Banking Group is seeking to become the UK’s primary wealth adviser and certainly has the potential given its broad distribution. However, analysts and spectators argue the company’s rationale behind the move and the quality of its investment approach could act as obstacles.
Following the bank’s strategic review, chief executive António Horta-Osório (pictured) has revealed plans to build an execution-only platform offering Scottish Widows and third-party products. This forms part of Lloyds’ broader plans to dominate advice to mass affluent and high net worth customers, triple the number of its ‘in proposition’ customers and increase income per customer by more than 50% by 2014.
The bank stated that bancassurance would form a ‘core part’ of the proposition and will invest in ‘specialised adviser models’ for protection and investments, self-service propositions with integrated planning tools delivered in branch, online and over the phone.
Can it work?
Given the substantial growth in the platform market and well documented plans of Lloyds’ competitors to grow their wealth management divisions and build platforms, is it too late in the day for Lloyds?
Michael Maslinski, founder of strategy and marketing firm Maslinski & Co, believes this is not the case, but stresses the importance of getting the proposition right.
‘Lloyds has got a good name. It is not too late in the day, but it will require substantial commitment in terms of building the business for the long term. Another question to ask is has the top brass at Lloyds got the stomach to make the investment and recognise that it could take time before it is a profitable one?’ Maslinski said.
Aside from not taking a view that is too short-term, he believes another potential barrier to success could be skimping on research and not fully understanding the target market.
‘One needs to find out more about what their target market is. Life assurance products are only appropriate at the lower end of the mass affluent market,’ Maslinski said.
Although potential clients may have become more sceptical about private banks post the credit crisis, he says the number of alternatives to large banks is still relatively limited and not necessarily well known in the mass affluent space, which weighs in Lloyds’ favour.
While Fowler Drew founder Stuart Fowler recognises the power and potential of Lloyds’ distribution, he remains sceptical of the bank’s plans, questioning the quality of the underlying products and the rationale behind the move.
‘If they are geared to financial objectives such as profits per customer, then they probably will screw up again,’ he said. ‘Is it all going to change because there is new management coming in? I don’t know. In this area it pays to be critical. If they stay in the mass market they almost certainly won’t get it right. If it is because of the retail distribution review (RDR) that they have decided to move up market then I am not sure if they have got the brand to work there.’
Richard Williams, managing director of wealth management consultancy MDRC, believes Lloyds has the potential to leverage off its distribution to expand its presence in wealth management, particularly given that the sector has a market penetration of just 35% to 36% in the UK.
‘The Lloyds Banking Group has tremendous distribution potential if it gets itself properly organised and structured,’ he said, adding the caveat: ‘This is a big “if” because all the major financial services companies are eyeing the UK wealth space because there is potential there.’
This means getting the proposition right will prove pivotal. ‘The cost of advice post-RDR means the self-directed option is the only way for many mass market providers,’ he said.
Meanwhile, attracting clients when they are young and largely self-directed could play into the hands of the client ‘life cycle’ relationship, leading to a potentially successful migration through their products and service types as clients become wealthier. This could prove profitable for the bank, he says.
Cormac Leech, an analyst at Canaccord Genuity, believes that under a capable management team, Lloyds should be able to increase revenues in its wealth and investment division from £1.4 billion to £2 billion by 2014, depending on how much investment there is in the new proposition.