You undertook a review of key people in the organisation when you first joined Friends Life. What changes have you made?
As part of my appointment I have reviewed the structure, people, processes and strategy. My first appointment was James Tan, ex global head of bank assurance of Standard Chartered out of Hong Kong.
The most important statement about that was, without being critical of the past, that FPI in particular started as a British expatriate business and it ended up being run by Brits for Brits, with a British team out of Salisbury running an international business which has grown rapidly.
I’ve made the joke a few times, and I was very well received by investors when I said ‘Look we’ve actually now got a Chinese person in Hong Kong running Asia. We used to have a Brit in Salisbury running Asia. We had people in our Asian offices on UK Vodafone contracts for data roaming.
Rather than it being criticism, I would rather say that all of us in the industry can fall into the trap of starting something that then needs to be re-energised and looked at again. HMV is a fantastic example of a great business that forgot people are now downloading music.
We also took a choice to have one chairman and common membership across the company boards because there is a need for strategic conversations. There are operational and market synergies that you need to discuss and in the past FPI and Lombard both had their own roles.
I’m really pleased we have Norbert Becker as the chairman, who was appointed in July 2012. He was a founding investor in Skype and has set up his own private bank. He has really illustrious international and broad financial services experience, and he is a native Luxembourger.
Then we appointed Matt Moran as chief executive of Lombard, which is a European ultra-high net worth business. Mat was previously the chief finance officer, and he was one of the newer people in Lombard.
One of the important things about the international appointments was that if you are going to run an international business you need international people. Now I’m embarrassed to say I’m Australian and not much good at languages. But there are quite a few people in our structure who are German, French, Irish, Chinese and so on. You’ve got to have some form of international experience that relates to the region you are managing. We were a life insurance company incorporated in the UK, and the business was completely ran by white western males – and that’s changed drastically.
We now have a full international executive team in place. Stefan Giesecke, general manager, Europe, is based in Cologne in Germany; and Kevin Cracknell, CFO, previously worked for Lloyds Banking group and Aviva. Our risk director Marcus Adam is located in London and was formerly with Prudential. Operations director Steve Weston was with Lloyds Wealth and strategy; products and marketing director Jerome Hallay, who is French, is ex-BCG and private consulting. Conor Sweeney is ex-Reuters Russia, speaks fluent Russian and lives in Luxembourg.
The life industry can be conservative and bureaucratic, can’t it?
Yes, and probably I’m a little bit biased. I’ve worked in the UK for over five years, but as an Australian, in my previous role I was working with ANZ in the same time zones as Asia. During my schooling in Australia I spent a lot time with Asians in the classroom, and travelled many times to Asia. So I understood about the Asian growth story, the culture and the time zones.
The most important aspect of Friends Provident International that we had not looked at – even if you leave aside culture and language – is how do you possibly manage a time zone for customer service and processing? It’s really difficult.
What are you doing to tackle the high commission culture and associated new business strain in overseas markets?
We are increasing our focus on single premium investments to reduce new business strain. When we complete the development of the new platform we’ll have a new range of savings products.
Transparency is the very clear intention with the regulations around the world. Australia led the way with the Financial Services Reform Act, followed by the RDR in the UK, the announcement of FAIR legislation in Singapore and commission disclosure in Hong Kong.
Our belief is that the market is changing quite quickly and that the level of upfront commissions are coming down, and the move to more trail-based products and less upfront loads is where a lot of people are heading, using non-contractual savings type products.
Which markets do you want to operate in?
In Hong Kong, we focus on local affluent people who want regular premium savings pensions and protection products. Half the business we do is with expats and the other half is local.
Expatriation as a market is predicted to grow between 12-15% per year over the next ten years. What expatriation does not mean is just British expatriates in Hong Kong, as Australians are now the second biggest population in Hong Kong.
It does mean people who end up in a country where we have a licence, who have come from a foreign destination and need financial services while they are in that country.
One area of the market that never ceases to amaze me is the many life companies which will not cover you when you are abroad. For us, that’s just a really lucrative market. That alone is an enormous need in expatriation that we service and have done so for over 20 years.
Our plans are to develop more expatriation services in our home market of the UK because it is one of the biggest expat markets in the world.
We’ve exported our services to Singapore, Hong Kong and the UAE with Friends Provident International and forgotten there are lots of people in our own home market who we should be servicing, and we haven’t been – and with Lombard that’s a vastly different market, with trust and estate planning.
At this stage we are not looking to develop into other countries, so part of what we are saying is let’s do what we do really well. We are currently reviewing our presence in Germany.
It’s a costly market, and if you think Hong Kong is a high commission market you need to look at Germany – it makes Hong Kong look like a low commission market. Its attitude to commission is behind the rest of the world.
What is the future of the Isle of Man operation?
Having an offshore licence in the Isle of Man, working with the Isle of Man regulatory regime and having a core hub in the Isle of Man is efficient.
Running all of your operations in a different time zone from the Isle of Man isn’t. So we will have a core operating hub out of the Isle of Man, this is absolutely fine and it works well and it’s a great financial services regime.
When I first stepped in and we needed more human resources capacity, we were recruiting in the Isle of Man. I said our fastest growing region is Asia. Hence we put the resource in Hong Kong.
In terms of head count, we reduced the international division by 100 people in 2012, from the total 1,350 employees including the Lombard business. There was more head count reduction in Salisbury than in the Isle of Man.
Is the number count reduction finished now?
The strategy review is complete. The implementation of the ongoing business is still underway and we will move more people into the time zones in which we write business.
Over the next three years our plans are that as we employ more people, we employ them into Asia and the Middle East – unless it is in areas such as products and marketing.
We are developing an intellectual hub in the UK, so there are areas of absolute best practice which would remain in the UK, but there will be more focus on moving people to the region in terms of customer service, the proposition, and putting in more local finance resources where for example we are employing a senior actuary in Singapore and Hong Kong.
What is next?
Although we sold our stake in AmLife, which took a lot of my time as we did that directly with no investment banks involved, I stay on the board until further notice.
We have approved our platform development and that’s underway with a platform expected to go live at the end of this year. I do mean a technology platform, genuinely new wave.
Our chairman has worked for very technologically-saving companies and he’s a key driver with us to say you need the technological service to be able to succeed.
