applied. Intermediary relationships are complex and take many forms. The main types are discussed below under the following headings:
• traditional brokers (including financial advisers, tied agencies, mortgage brokers);
• non-traditional partnerships;
• other intermediary arrangements;
• hybrid situations.
Traditional brokers
Brokers perform an important role at the interface with the customer. They develop a trusting relationship with clients, advising on products to meet complex needs. Typically they sell one or more of life, general insurance, investments and home loans products. The FS business may be a by-product of their main area of operation, as is the case with accountants providing investment advice or estate agents selling home loans. Depending on their business, intermediaries may focus only on customer acquisition, passing customer support and long-term relationship opportunity to the provider (for example, an estate agent would pass management of the relationship to the mortgage or life assurance provider). Here, the provider is free to cross- sell other offerings as it builds a relationship with the end-consumer. In other situations, the intermediary retains the customer relationship (as is usual in general insurance or long-term financial advice). Any attempt to step into this primary relationship by the provider would be fatal.
In the UK life insurance market an important distinction is made between independent financial advisers (IFAs) providing advice across a full range of suppliers and tied arrangements. In cases of single ties and multi-tie arrangements a close working relationship is probably required, in particular because the supplier has additional accountabilities for ensuring that the agent complies with legislation in providing advice on products.
Regulation also allows the supplier to give more assistance to the interme- diary than to an independent adviser. In these more closely tied cases a KAM approach may be applicable. In the IFA market KAM may have been less developed in the past because of the diversity of the sector. While it is large, employing around 50,000 people in the UK, this is made up of around 9,000 organizations (Foss and Stone, 2002). However, there are pressures towards consolidation and rationalization through both mergers and acqui- sitions and common interest networks, as follows:
• The application of technology for providing quotes and for transacting business is leading to the development of larger networks of IFAs, ben- efiting from common systems support.
What is a key account in financial services?
• Requirements to comply with legislation and to ensure that staff who provide advice are fully trained favour the development of larger networks.
• The pressure on margins for investment products may favour larger intermediaries with increased bargaining power, which can do deals to the benefit of their customers.
So even in the diverse IFA sector it is increasingly important for suppliers of products to deal effectively and efficiently with networks that deliver volume business. A KAM approach is increasingly relevant. Another example of the increasing relevance of KAM can be seen in the broker sector of the home loans market. While lenders used to deal with small mortgage brokers through their branch networks, now these arrangements are becoming more centralized. A new sector has grown up – the packagers.
These further intermediate this market, by providing an interface between small brokers and the lenders. The packager deals directly with the smaller broker and undertakes the set-up administration on behalf of the lender. The increasingly centralized lenders now often deal with a small number of packagers and directly with large brokers, rather than with a myriad of small brokers through local branches.
Non-traditional partnerships
A significant trend in recent years has been the entry of new players into the FS market. These include retailers, such as Wal-Mart, with a strong brand and access to a large customer base. The new entrant acts as an intermediary, with a traditional financial supplier providing the actual product. This model is also being adopted by other non-traditional providers attracted into the FS market by higher growth opportunities than those available in their own industries. Utilities, telecommunications companies, car manu- facturers and other retailers use their product as a gateway to sell FS to their large customer bases, often using a banking partner for the licence and product capability. Some, such as Sony, IBM and Ford, have gained suffi- cient licences to provide these financial services directly, without the need for a partner. They may affect the traditional balance of the industry. Thus, Wal-Mart has used its strength to challenge the traditional card charges and payments systems. Developments in technology have enabled the provision of FS through these non-traditional suppliers, who often use call centres or the internet as primary interfaces with their customers, to support their low- cost retail operations. In banking, ownership of an expensive network of branches and ATMs is no longer a precondition of market entry.
So, the FS market is becoming more competitive, with the entrance of these new players with their powerful brands and large customer bases. But Defining key account management in FS
many new players do not have either the expertise or infrastructure to create and manage the financial products themselves. Invariably many deals require working with an FS partner. This means the two organizations working in a relationship that may range from a one-off promotional agreement through to a full-scale joint venture.
For traditional FS companies faced with this new competition, the choice is between competing head-on with new players or working with these new players, or both.
Other intermediary arrangements
Many other intermediary arrangements exist in the FS industry. One is the selling of financial products through the workplace. In this case the work- place company can be seen to be an intermediary channel, offering access to its employees for pension schemes, health and other such products.
Worksite marketing has grown rapidly in the US in the last decade and is probably set for a similar growth in the UK market (Foss and Stone, 2002).
Where the workplace organization is large, this could extend to the devel- opment of tailored and own-branded products. These workplace services can be made available via corporate intranets, relieving the buying company of much of the administrative cost and effort of providing differentiated employee services.
Another arrangement is agreement between separate FS organizations to provide tailored products to the customer base of other financial organiza- tions to broaden their product offering. For example, an insurance company might sell an own-branded credit card to its customers, sourced from a banking partner, or consumer goods may be ordered online with associated loan and insurance products.
Hybrid KAM
The previous sections demonstrate that much FS business is done through organizations acting both as corporate customers and as intermediaries. So, a complex web of relationships often exists between organizations and there may be a mixing or blurring of KAM categories. A client company or indi- vidual decision maker may be a final customer and at the same time also an intermediary (a general insurer may insure a bank’s physical property and also sell insurance through the bank). A client may be a key account for one division of a company and not for another division of that same company.
Reinsurers sell to insurers, who take on some of the small risks and reinsure large ones, so the customer may also turn out to be a competitor. All this high- lights the complexity of relationships between the organizations involved. It also affects how organizations deal with regulations with regard to the sepa- ration of roles and the creation of ‘Chinese walls’ within FS suppliers. For
What is a key account in financial services?
instance, in the US, rules that apply to the independence of analysts in investment banks may limit the access to research that a reinsurance arm of that bank may wish to provide as an added-value service to its clients.