Execution-only online services a huge opportunity for IFAs
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I love change. I know a lot of people are change resistant but I am quite the opposite and one of the reasons that I race to work every day is you just never know what is going to change next.
The best type of change though, the one I like most, is the type that you create for yourself. Our view is that the world of the financial services intermediary is going to change quite dramatically in the short term (two to three years). If you think this is going to be one of those “RDR” articles don’t despair, it isn’t. The change that we envisage happening is down to another driver almost entirely. That driver is the internet and a seismic shift in the way that people are going to buy their financial product solutions in the future.
The role of the intermediary is going to change. It will change away from being the route by which people buy their products (Isas, pensions and investments) and the role will become that of a facilitator. The future financial services intermediary will segment their offering into two distinct deliverables.
The first of those will be financial planning which will come of age in the immediate future and there will be recognition that this is where the real value lies. Many IFAs are already buying into the fact that financial planning precedes financial advice and there is a significant difference between the two. The difference being that financial planning deals with the “what if” aspects of a persons future by providing a track to run on and financial advice simply being the mechanism for delivery of solutions.
The second offering will be the combination of information, guidance and execution facilities which will seriously empower consumers to arrange their own financial advice solutions.
So it is financial advice that is most under threat from the change that is taking place. Particularly at risk is the “bundled” financial advice approach whereby the advice constitutes a relatively small part of the proposition and where the product sale dominates the adviser/client relationship. Whilst the abolition of commission under the RDR will be part of the reason for this change more important to this change will be the availability of sites that make it very easy for the consumer to do their own thing.
Of course there will be many who disagree with what I have to say. Consumers cannot do it for themselves, it is too complex and too time consuming and people generally don’t feel confident enough- that’s why they need an intermediary. Without the web I might agree but it would be a brave man or women who denied the power of the internet.
If you want evidence then it is there in abundance. It is perfectly possible for the typical consumer to sit in front of his or her pc and purchase just about any commodity they want. Book your hotel or holiday, no problem. Buy a DVD, Book or CD that’s as easy as Amazon. Arrange your car, home contents, buildings or even life assurance and frankly nothing could be easier. It must now be the minority who have not heard or tried online banking. These execution sites are frequently supported by massive amounts of information and guidance in abundance.
What have I not listed? Of course if some one wants to buy an Isa, a personal pension plan or a collective investment arrangement then there is already a good deal of choice available to them. At this stage advice is in the minority via the web but this is now beginning to change.
So here is a view of one intermediary model that will begin to change the face of the IFA community. It is a segmented offering where financial planning is provided either face to face or in combination with an online approach. The firm then offers a website where the consumer at low cost, with whole of market choice can execute the solutions that have been identified for them really online and totally transparent..
Is this really possible? Well my answer is a resounding “yes”. This is because we have already taken the most significant steps to achieve exactly this type of model. This week we launched our website www.brilliantwithmoney.co.uk. It’s exactly what I have described above in that it offers information, guidance and to start with an execution only Sipp. Does it threaten the financial planning services that Informed Choice offers? No, not a bit in fact we think it will help to stimulate those people who really do need financial planning advice to contact us.
Does it cost a fortune to create such a facility? No, absolutely not but it does require a bit of creativity and drive and fortunately I have colleagues who have plenty of such attributes.
Deny the power of the internet if you wish. Cling on to the hope that people will always need advisers to implement product solutions for them but I see a different future and a very prosperous one for those who embrace such change.
Informed Choice chief executive Nick Bamford
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Readers' comments (24)
Philip Calvert | 26 Oct 2009 1:15 pm
Cue the doubters, but for my money you are spot on Nick.
The scary or exciting bit (depending on your outlook), is that this will happen much, much faster than most people imagine.
"Our sort of client isn't interested in the Internet" is a common cry amongst the doubters - and is based on nothing more than gut feeling and no evidence at all.
But every hour of every day, consumers of all ages are looking for financial information on the Internet, and at the moment very few IFAs are providing on their websites what consumers are looking for.
The time really has come for the industry to get to grips with this.
Thanks for a great article Nick.
Philip Calvert
www.ifalife.com
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Man in Black | 26 Oct 2009 1:49 pm
I have previously worked for firms that indeed segment their offerings in this way.
I have been saying this on blogs elsewhere for sometime. Its not just books (and we had one of Martin's books on our aStore), you can even buy and customise a Range Rover online as well!
However, a couple of things to watch out for though. Margins for online X-O business are pretty thin; its easy for clients to shop around and frankly helps if you've got a scale of operation. Try rivalling Bestinvest or Hargreaves if you're 3 men in shed in Sydenham (I've tried this - it's difficult!).
There is also an issue in being able to "sell advice" if you're trying to offer it remotely alongside X-O. Again, I've done the "great value advice from Chartered Financial Planners" thingy - but the clients who are *currently* internet savvy do not jump at the idea of paying a fee for remote advice.
But otherwise Nick, you're right. Though a lot of IFAs will say "the internet's not for my client", I suspect you only have to look at what is happening to the traditional High Street to spot what is happening...it's no different from what killed the High Street insurance broker.
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Anonymous | 26 Oct 2009 2:51 pm
here we go full circle. we may as well promote DIY conveyancing or even go further DIY heart surgery - come to the internet and find out how far down the breast bone to cut to replace a heart valve. The internet is a great source of information, just like a library used to offer. But to encourage people into execution only transactions is lunancy beyond belief!
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Nick Bamford | 26 Oct 2009 3:18 pm
Fortunately I am not a lunatic ( a bit odd at times but still quite sane!!) but more fortunately I don't deny the power of the internet. There are very, very many people out there perfectly capable, with information and guidance, of doing it for themselves.
But Anonymous should re-read the article I am actually suggesting that the execution takes place after advice has been delivered.
Implementation is low value material (which is why the internet works) advice is high value. How silly to suggest that it even compares with life threatening illness requiring surgery
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Philip Calvert | 26 Oct 2009 5:51 pm
@Anonymous
What is actually happening on the Internet, is that consumers actually WANT to DIY. Many will inevitably make a hash of it, but we cannot stop them trying. Far better is to HELP them do it correctly - and to charge them for the privilege.
If, as an industry we do not or cannot get our heads round the idea that the Internet is enriching the lives of consumers of all ages, and is replacing many traditional face-to-face services, then the financial advice industry is dead in the water.
We have absolutely no choice but to adapt our service proposition accordingly. That does not mean that face-to-face advice is dead - far from it. It is just one distribution route - but it better be good. Very good...
Philip Calvert
www.ifalife.com
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Anonymous | 27 Oct 2009 6:46 pm
I again dissagree with both Philip and Nick. What you are suggesting is not only dangerous but belittles all the hard work that professionals like you both have done to increase the status of both the profession and those working within it. Why after all these years of continuing CPD and exams would you want to give adivce to somebody and then have a vehicle for that indivudual to take that advice and on an execution only basis buy the solution online. I have seen the results of this kind if solution in the offshore market where clients are virtually transacting execution only business through non regualted advisors, It is sheer lunancy and the mess it creates brings back memories of bad selling practises of the 80's. By all means use the internet and I actively encourage all clients to reesearch solutions, but to then transact the busienss execution only style, to presumably reduce the amount of your paper work or liabilty on the PI insurance, is demeening to both the profession, the people who work within the profession and more importantly is putting clients at risk becasue they will then have the false sense of security that their financial needs are fully catered. Face to face advice is absolutely vital to our busienss and whilst i recognise neither of you are suggesting for one minute that it should dissappear, but the idea of clients being able to take the advice and buy the solution via an execution only service is in my mind not a new distrubtion channel, but an irresponsable distribution channel.
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AG | 28 Oct 2009 1:11 am
I can see the sense from both sides.
On the one hand, there are already execution-only sites operating in this area and doing rather well.
So should financial planners start to offer this service through their websites?
What Nick has done is a good example of giving the consumer the choice to make that decision. However there are certain fundamentals that we, as a profession, must be mature about.
Eg. George Kinder's 3 questions are becoming flavour of the month: I have seen some financial planning websites asking these questions quite openly. This is nothing short of childish behaviour akin to a teenager who has just learnt a new technique about pulling, so he goes and describes it to the girls. The result - total loss of mystery, excitement and wonder, with the end result probably equivalent to confusion.
People will always do what they feel is right, however I say that by giving information for free undervalues our profession and appears a tad desperate. It is quite apparent that these are being done to get a slice of the market share, which is fine, but mainly serves the interest of the firm rather than the client. Clients who have gone down the execution only route with regards to ISAs and protection do not come back for advice, until things have gone wrong.
I do take Phil's advice and will take action, but there will not be a full blown information service for free - just enough to create that air of mystery and excitement to seek our help.
Now...anyone able to help me creating that??
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Stuart White | 28 Oct 2009 1:19 pm
We've seen the internet change and evolve way beyond our expectations. Where it will be and what it will offer 5 years from now, I think will still surprise us!
The future generations will consider transactions on the internet to be the norm. Whilst current generations may still prefer face to face transactional support, the internet is making everything easier.
I think Nick and Phil are correct in their assumptions. If we are to maintain longevity in our business, we too must evolve and change how we are approached and how we will cater for the demands and need for our clients as a service provider.
Assuming that transactional business will be DIY is a fair and safe assumption. People will want to do it themselves to try and save money (I try to do all my maintenance work myself, car, etc. using the internet often but find that when i'm out of my depth I will pay for expertise to either assist or more often takeover!) This will be true of financial planning. Many may find the options too confusing and wish to seek advice either as a one-off to ensure they are on the right track, or to takeover is alleviate the stress and worry of making the right decision. Our roles as financial planners will focus on service and advice. Transactional business will not have the same emphasis on our earnings as it perhaps has today.
Separating advice and service from eventual transactions will be fundamental to our future business models. Those advisers with comfortable trails and renewals may be sitting easy just now but for those who have 30+ years left in this industry or those who wish to maintain the longevity of their firms out-with their own careers should be seriously addressing how they intend to evolve their businesses to survive in the future.
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James Marchant | 29 Oct 2009 9:36 am
At this stage I have no real opinion either way on this debate although I suspect that Nick is on to something with his arguement.
I was interested to read the following blog by Graham Jones on the IFA Life website which tends to support the counter arguement:
http://www.ifalife.com/articles.asp?AID=558
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Nick Bamford | 29 Oct 2009 10:48 am
Please can I invite Anonymous to read the article again and understand what is being said. The phrase"Execution-only" appears in the title but that is not what I have said and the article clearly states that the execution (or implementation if you prefer) is driven by advice, So it is clearly not "execution-only".
That said how can I be so self centred as to believe that many, many consumers are not perfectly capable of doing all of this for themselves?
I accept that some will get it wrong as per the example quoted by Anonymous but advice driven delivery is in itself not a perfect solution as we all well know.
Facilitating the buying of a product solution on line, at low cost is of no threat whatsoever to the competent adviser. All the really good research tells us that clients value most the advice and planning delivery and place little value on the completion of the product execution.
And yet the setting up of the financial product is where the most cost (commission) seems to be incurred.
We need to recognise that unbundling advice and planning from the product solution is going to empower the consumer in the future and again let me emphasise we dismiss the power of the internet at our peril
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