Skandia doesn’t do manufacturing and it doesn’t do retailing. Stuart Engel discovers exactly what it is the Swedish based financial services giant intends to do in Australia.
Skandia’s office in the heart of Sydney’s CBD is fronted by an empty desk and an echoing wooden floor.
There are no receptionists or corporate insignia to welcome guests and the brand new air conditioning system is rattling with teething problems. In fact, there is little indication of a business that aims to be one of the biggest players in the Australian financial services industry. Until you meet the people who head up the fledgling operation.
Skandia, or Australian Skandia as it is known here, has big ambitions for the Australian market. The group hopes its unique approach to financial services will place it in the market’s biggest five once it has fine tuned its strategy to the Australian environment. Australia is one of the Swedish group’s biggest growth prospects.
Worldwide deputy chief executive Jan Carendi says the key word for the group’s approach is “wholesaling”. But this is not wholesaling in the sense of institutional or superannuation funds nor its it wholesaling in the traditional product manufacturing sense.
One of the first things Carendi has been explaining to the various politicians and regulators he has been visiting while in Australia recently on a whirlwind visit is exactly what Skandia does not do.
“We do not get involved in funds management and we are not retailers,” Crendi says.
So what is their left to do in the value chain if you are not a manufacturer or retailer of products?
Carendi’s answer is wholesaling, or packaging investment products to make a solution for financial planners.
He says the Skandia focuses on relationships with financial planners. It uses a manage the manager investment process to offer what it calls a financial solution for planners and their clients. This could take the form of a multi-manager product or a bundle of funds that suit a particular client’s risk profile.
Instead of a menu of fund managers used for discretionary master trusts, Skandia provides guidelines for a certain mix of fund managers for a given risk profile and investment inclination.
“We call it letting the client finish off the product,” Carendi says.
But a lot of the work is building the relationship with advisers. This takes the form of providing education for financial planners on investment strategies and business development such as putting together client presentations for advisers or Internet strategies.
Sounds like most fund managers? Carendi admits Skandia is not the first financial services provider to concentrate on servicing independent financial planners, but it intends to raise the bar on service.
“We call it raising the emotional switching costs,” Carendi says, meaning that the group is trying to make the financial planner dependent on their services so they will continue to use them.
In the US, Skandia won 17 of 18 service awards under the Delbar system last year and has won the overall awards twice in the past three years. It also runs what it calls the American Skandia University in the US for educating financial planners.
And the Skandia approach appears to be paying off in funds under management growth. The worldwide business has grown 50 per cent every year over the past five years without a single acquisition. Its sales worldwide were up 70 per cent last year to $20 billion.
Carendi says the group is not simply focused on growing revenue but also the margins of the business. He thinks margins at the funds management and master trust level are going to decrease over the next few years while margins at the retail side will continue to flourish.
“The transaction part of the value chain can be replicated but the relationship can not be. If it can be replicated then the margins will suffer,” Carendi says.
Australian Skandia announced its intentions to hang out its shingle early next year about six weeks ago and is stepping up efforts to meet regulatory obligations and hire staff. Australian managing director Ross Laidlaw and Asia
Pacific regional manager Johan Hofvander, both long time Skandia executives, have been evaluating the Australian market for the past two years in preparation for the launch.
The group expects to roll out superannuation and managed funds products early next year.
