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The 21st century promises a whole new way of investing

In our occasional series of guest columns by leading lights in the financial services industry, DAVE AVNIT, general manager of Fedsure Life, looks at investing in the year 2001.

PREPARE for change, investors - the millennium will bring on a new financial services industry. Doing business in the year 2001 is going to be vastly different from the business mode of the past - and the factors orchestrating this change are already making their mark.

The driving forces include:

  • The lines demarcating the different sectors in the financial services industry are fast disappearing. In the next three to five years, it's going to be nigh impossible to distinguish between banks, life assurers and fund management companies, among others;

  • Most industry players are at present eliminating the differences between various products. This is significantly changing the basis of competition in the industry which is no longer dependent on product characteristics;

  • Technology is playing a big part in the way business is conducted. Products are being offered to investors in a different form - for example, through direct selling. Administration is increasingly becoming technology-based and is resulting in the destruction of barriers between different financial service providers. On an industry level, technology requires huge investment and this will make it difficult for smaller companies to survive;

  • For some time now, the industry has focused on eliminating costs, and this is adding to the heightened competitive pressure;

  • The industry has been subjected to major globalisation in a short space of time. Local companies are forming overseas alliances, making investments, and entering into acquisitions on a large scale.

    In addition, international players are moving into the local industry - banking, investment management, stockbroking and life insurance.

    This further increases competition and brings with it new ways of doing business.

    So what does all this mean for investors?

    In most instances, it's good news as it provides a wider range of investment opportunities and more competitive products. On the downside, though, it can be confusing - both to investors and intermediaries. The speed of these developments has led to a barrage of bewildering information and new products.

    These developments will result in significant changes to the structure of the industry and its participants - existing market strengths are in no way indicators of future success.

    The industry of the future is likely to be a mix of existing players, new companies, and joint ventures with international companies.

    The changed environment translates into an onerous responsibility for intermediaries (including company agents) to advise their clients on the most appropriate companies to support and the best investment products.

    Investors should be extremely cautious about new investment fads.

    In the last month, much publicity has been given to new products and companies - but when you strip away the jargon you find the same products, only differently packaged.

    The changing industry has brought a new dimension to investment evaluations.

    The investor and the adviser need to focus carefully on the future viability of the institution promoting the investment.

    The investor must ask key questions before committing his money:

  • Is the institution likely to prosper in the merging financial services market?

  • If the institution is absorbed, acquired or merged, what impact will this have on investments?

  • Does the institution see itself as a financial services group, or rather as participating in only one sector of the industry?

  • Is the adviser knowledgeable about the prospective future structure of the industry?

    Failure to apply these questions could give rise to underperforming or, even worse, disastrous investments.

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