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A question of cost

As the 21st Century really gets started (the year 2000 having really been the last year of the 20th Century), it is an ideal time to think about what will be the characteristics of the successful 21st Century adviser.

Whatever the result of the current review on polarisation, one thing we do know is that they will have to operate on far lower levels of commission income. As was revealed by research by Cap Gemini Ernst & Young late last year, most major insurers are well advanced in plans to cut commission levels by as much as two-thirds over the next three years.

To further reinforce this point, a study by KPMG has suggested that IFAs will have to increase the level of business they write by 400 per cent just to maintain their current level of income. This must mean that advisers will need to find far more clients, some of which will have to be dealt with in a far more streamlined manner.

The IFA sector, quite naturally, predominantly services the higher end of the income scale. This is where people have most to invest and can afford the cost of the services. At the same time, there are vast swathes of the population who would clearly benefit from independent advice but are not getting it.

Two-thirds of all protection plans are bought direct or via appointed representatives of life offices. Somewhere it would appear that IFAs are failing to reach a major section of the community that could clearly benefit from their services. To address this, I believe it is necessary to fundamentally address the cost of financial products in general and advice in particular.

It is expensive to deliver personally tailored advice in a face-to-face environment. No doubt, there are many people who value this and will continue to do so. Sooner or later, if the anticipated cuts in commission payments come, I believe more and more advisers will find it necessary to introduce an element of fees if they are to keep up such high services.

Although good independent advice can in itself be an excellent investment, if the customer fails to seek such advice because they believe the cost is prohibitive both the potential customer and the adviser lose out. Could this be because we have in fact overplayed the complexity of financial matters?

Millions of people live relatively straightforward lives on incomes around the national average working for a single employer, paying tax via the PAYE system with fairly standard aspirations to live a healthy life and give their children a good start in life. For those people who do have such straightforward affairs, can we not identify an advice process that will help them get some guidance at a cost they can comfortably afford. If you like, dare I say it, a general financial advice decision tree.

Such a process could begin by asking a range of questions to make sure there are not any special factors that make the customer unsuitable for such an approach. Then, having identified that they fall into such a standard category, the process could then examine their situation and create suitable options.

As I write this, I can almost hear some readers shaking their heads and suggesting that I do not understand financial advice and that if you dig deep enough you will always find some obscure or special situation that requires some specialist guidance. Okay, so maybe you will but what if the client cannot afford to pay for that advice or it is uneconomic for the adviser to give it?

With ever decreasing inc ome levels, it is going to bec ome more difficult day by day for advisers to subsidise work done for less well off clients. We need to find a way to help them more economically.

Such a service might be charged at a fixed fee for each area examined with a further fixed fee for actually executing any necessary contracts.

All I am describing is, of course, ideal for basing on an internet or interactive digital TV platform that the customers can access at their own convenience. In addition to the basic advice service, a whole range of consumer education tools can be built around such a service. They could equally be provided over an employer&#39s extranet service to employees in their workplace.

One of the most common consumer complaints about our industry is that it is full of jargon and difficult to understand but does it really have to be that way? I believe it is highly significant that the FSA has now announced it will not carry out periodic visits to low-risk advisers.

Automated advice systems, where the basis of the advice is pre-programmed and aud itable, make it very easy to demonstrate the risk profile of the advice given.

Systems like this once built will incur far lower relative maintenance costs than human advisers. Equally, it will be important to have a team of qualified advisers constantly reviewing the agreed parameters of the advice given.

In doing this, an IFA could potential deliver services to thousands of individuals in the time it might normally take to see a fraction of this number. Aut omating the deliver pro cess does not necessarily remove the role of the human adviser, just where they sit in the process.

Some advisers may feel they have to offer some personal help to anyone screened out of the process because they fall into one of the specialist groups identified at the beginning of the process.

In this case, the fee for all users of a service might make provision for a limited amount of face-to-face advice should a situation that warranted it be identified on the basis that only a few people would actually need to use it.

Consumers need to be able to access financial advice they can afford. If, in the fut ure, people can continue to afford traditional independent advice, fine, but we also have the opportunity to help those who cannot and provided we can do so in a cost-effective way this could well also provide a much needed boot to the income of many advisers.

I believe the adviser of the future is likely to offer a range of services so their customers can choose the level of service they want.

Equally, they will segment their services so that clients can seek assistance from an adviser in some areas but self-serve in others.

Cutting down costs as we move into an era of lower product charges is a survival issue. Automating the process has, I believe, the capacity to multiply IFA market share and is not an opportunity that should be lost just because things have not been done that way in the past.

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