23/01/2012

By Tony Collins, Chairman Of OPAL

As the global economic downturn continues to dominate the headlines, the doom and gloom reported by the media seems to be getting doomier and gloomier by the day.

However, for financial services firms, it’s not all bad news, as there are still investors out there who refuse to be scared off by this media scaremongering and who understand the basics of investment.

Forward-looking investors that were burned by equity income funds, absolute return funds, and products linked with exposure to financial stocks during the recession are still willing to consider corporate bonds and certain structured products, for example. For these investors, it’s simply a question of deciding on the term of the investment, what returns they hope to achieve, and then choosing the best product.

Savvy investors also understand that it’s never a good idea to put all of their assets and risk in a single asset class or investment, and so many people are now opting for low-cost funds that are adequately diversified in order to help reduce their risk. For example, it has now become popular to diversify the risks within bond investments by creating a portfolio of several bonds, each with different characteristics.

Although the current level of inflation – along with the potential for a rise in interest rates at some stage – normally spells bad news for the bonds market, these factors have actually been priced into the market already. As a result, a diversified bond portfolio has become an attractive choice during challenging economic times.

Even so, the resolve of many investors has been shaken in recent years, which means that new bonds – or any other financial product for that matter – will need to be carefully planned and executed in order to attract new customers and avoid costly mistakes. Product design, in particular, will have a vital role to play in any post-recession financial products, and the Financial Services Authority (FSA) and the Office of Fair Trading (OFT) have just published new guidelines for any financial services firms that are planning to design new structured products.

Amongst its other recommendations, this guidance stresses that firms need to ensure that these products reflect their customers’ needs more closely, and that they ultimately have investors’ best interests at heart. Likewise, the OFT has urged firms to make sure that their consumers are clear about the nature, price and implications of any structured products being sold.

The design of financial services products that meet these criteria will require a significant amount of forethought, planning and strategic vision – which is precisely why many financial services firms outsource this process to companies that specialise in this area. Not only is outsourcing a much faster way to launch a new product, but it also makes it much easier to comply with the latest regulations in areas like Treating Customers Fairly (TCF), Conduct of Business (COB) rules, the Data Protection Act (DPA)and many more.

In this highly competitive market, where financial services businesses are fighting it out to secure market share and keep hold of their customers, new and innovative products are now a constant requirement for banks – and outsourcers can design a wide range of compliant, customer-friendly products very quickly.

This expertise in product design is just the beginning, however: financial services firms will also need to make sure that any subsequent marketing is done correctly and appropriately in order to avoid any future mis-selling issues like those associated with Payment Protection Insurance (PPI) products. By working with an outsourcer that can combine innovative product design with clear marketing in this way, firms can ensure that investors understand exactly what they’re buying when a new product is launched.

A key part of this battle will be the ability to design transparent, fairly priced financial products that appeal to the greatest number of potential investors. Without a doubt, structured products will have a key role to play here, but only if they’re designed, marketed and sold correctly. By following these steps, it will be much easier for firms to develop a unique value proposition that will help them stand out from the competition.

As such, any firms looking to launch new structured products in a post-recession environment will need to focus on innovative product design, as well as regulatory compliance and speed to market. All three of these factors will be essential, as the financial services sector has become more competitive than ever in recent years, with companies increasingly fighting to differentiate themselves in an over-crowded market.

As such, it’s now more important than ever for firms to establish their reputation in the marketplace very clearly. Success in this area will rely on careful and strategic planning, since the products on offer, how they are marketed, administered and supported will all come into play here, whether the firm decides to focus on a niche segment of the market or a broader customer base.

Branding will clearly be a key consideration here, since all modern financial institutions now follow very strict brand controls. As a result, it is essential to ensure that any customer/adviser contact – whether electronic, paper or voice – adheres to any branding requirements very carefully, as well as any data security regulations.

Although most investors claim to focus exclusively on the returns on offer, firms will need to use a certain amount of psychology here as well, since post-recession investors will be looking for products that appear to be safe, fair and reasonable, especially as many people have found out the hard way that products that claim to offer ‘guaranteed returns’ are not always what they seem.

In order to achieve these objectives, financial institutions will need to make sure that they are aware of current market trends, and that they are able to keep their clients informed about their latest services and/or products effectively, since that is still the best way to encourage clients to purchase them. On-going market research, for example, combined with a thorough competitor analysis and close ties with knowledgeable partners will help firms attract – and retain – even the most financially conservative customers.

Even after the economy begins to recover, the cost of developing and launching a completely new product and/or distribution channel can often be very high. It is also a sizable medium to long-term commitment, as staff and premises will often need to be employed for up to five years, even if the initial campaign might only last for one or two years.

By outsourcing this function, however, banks are now able to launch new products within 30-60 days. In addition, by using an outsourcer for third party administration, banks can now delegate the responsibility customer communications, product distribution, complaint handling, customer communications and more by partnering with a skilled outsourcer that is able to embed itself in the heart of the bank's operations.

A common fear among firms in this sector is that they will need to build whole new systems and address large-scale administration and regulatory requirements in order to design, market and administer financial products that appeal to post-recession investors, but that’s not the case. By working with a specialist outsourcer, financial institutions can actually delegate the vast majority of these responsibilities, and focus instead on selling easy-to-understand, fully compliant products that are in tune with their culture and brand, and which will satisfy both their customers and the regulators.

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