15th September 2014
Advice 4 you
Earlier in the year we explored the Waterbed effect, a phenomenon that has the natural (not necessarily intended) potential, to squeeze one part of a complicated and complex regulated business model to cause a serious bulge elsewhere in the process.
It is a common sense albeit simplistic analogy supported by a little known mathematical formula called Bode’s Sensitivity Integral.
The Waterbed effect has been well illustrated in the mobile phone industry where regulation and political interference fixes, distorts or manipulates the prices of basic products and services only for consumers to see complicated pricing structures ensue by way of significant increases in the price of peripherals and additional services as a direct consequence.
Airtime providers have been hammered by regulated price cuts to the cost of phone calls, in particular with the EU parliament setting very strict limits on how much customers can be charged for using their phones on holiday. The ‘Waterbed effect’ in this case is that these airtime providers have been looking to take out cost from their businesses and the chosen method is to self distribute.
So although it may come as a surprise that Phones 4 You has shut up shop, the industry and politicians should take note. Because what happens in one industry with an intermediated distribution model can easily move to another.
Financial services providers are still feeling their way after RDR. They have seen their ‘distributors’ segment client bases, re-evaluate business models and move away from the selling of products to the selling of advice.
Typically in doing so, these firms have concentrated on servicing much smaller numbers of clients, the unintended ‘Waterbed effect’ here being that the mass market consumer has no longer got somebody independent to ‘buy’ from or be ‘sold’ simple products by for ‘free’.
Simplified advice as the FCA advocates is simply a non-starter at the moment and all those product providers have businesses to run, products to design and products to sell.
Do not be surprised if the future of financial advice sees itself as a ‘Doppleganger’ of the mobile phone industry with the ‘Waterbed effect’ being the realisation that the mass market is a huge opportunity but a minefield the consumer will have to walk through unaided.
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