The moment a product or service becomes mass produced or starts being offered by a number of suppliers, it runs the risk of becoming a commodity. Developing points of differentiation then becomes a key factor in ensuring the existence and future success of a given business.
Financial services, perhaps more than other industries, is particularly prone to the notion of ‘commodisation’, with areas such as platforms, managed funds and custody often viewed as commodities.
In the area of back-office service provision,Avanteoschief executive officer Mark Papendieck argues that the core product offering of any platform is administration and these services are a commodity.
“Administration providers [will] have to be looking to provide a broader and fuller range of services to their clients. There is no doubt that ourselves and our competitors are going to have to provide a broader range of services to retain and attract new customers,” he says.
In order to do this, Papendieck argues companies need to decide how they can best expand their offering, that is, develop additional products and services in-house or enter into alliances with specialist providers.
“Small, specialised niche providers are starting to contact us in order to integrate their software with ours. This is a definite shift from a year ago when these players would build a system and then go and sell it themselves,” Queensland-basedIDTclient services manager Ian Caldwell-Smith says.
According to Caldwell-Smith, the areas in which companies tend to specialise are risk profiling, objectives-based planning and mortgage systems that allow advisers to recommend mortgages based on the best interest rates on a daily basis.
“Pure transaction processing is the commoditised area. Financial planning software, modelling software and customer relationship management (CRM) tools are some of the value-adding areas that firms can provide around a wrap service and in doing so, provide a total business solution to their customers,” Papendieck says.
The industry, Papendieck argues, will experience an increase in the packaging of multiple solutions going forward, so that planners will be able to approach one provider and receive a “bundle” of solutions.
“We have alliances with quite a few providers at present and we’re always talking to other providers. We believe that you can’t have expertise or be centres of excellence in everything. While we acknowledge that we do have areas of core competency, we also outsource other functions that our customer base is asking for,” he says.
According toXplan Technologiesnational sales and marketing manager Jason Huong, smaller specialist providers align themselves with larger groups to cut down on the marketing costs of winning clients for the products and services and, most importantly, to stay in business.
“While there is room for a number of providers [in the back-office market], the only way for smaller operators to survive is to align with bigger firms,” Huong says.
