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Back-office to the future

Retailers on both sides of the Atlantic had their best ever period for online sales over Christmas. More customers bought CDs, books, and gifts over the internet than ever before. The British public appear to have succumbed to the attractions of e-shopping, with supermarkets&#39 online sales growing exponentially.

But while Britons may be happy to buy a CD online, how many people would feel comfortable clicking £7,000 away to buy an Isa with no advice?

In the UK and US, the bellwethers of online selling, the proportion of consumers ins isting on advice before buying investment products remains stubbornly at around 70-75 per cent. In other words, some three out of four consumers do not buy investment products without a personal reinforcement of their choice.

Of course, there are some ways in which the internet holds an advantage over other channels. It is the best way for a customer to gather information, track an investment or follow a fund&#39s performance. The conversion rate from shopping to purchase through e-investment remains remarkably low at 2-3 per cent.

Yet the internet boom means investors are now faced with a new vehicle for their hard-earned pounds – the online fund supermarket. Offering a dizzying range of choice, there are now several of these investment media on the market with an amazing Aladdin&#39s Cave of choice. Many more are queuing up to join them, between them off er ing thousands of funds.

Where is the customer left in the face of this explosion of choice?

The answer, as the US model demonstrates, is that today&#39s investor is not in need of less advice. If anything, he is more in need of advice than ever before in the face of inc reased choice.

More choice and information create the need for more advice. The online-only channel, therefore, is incomplete. It must be supplemented with offline channels – call centres, advisers or branches – in order to meet customer needs.

If not, the online execution-only channel simply cannibalises the direct channels.

Egg is the one exception to this rule, having a significant first-mover advantage that has enabled its fund supermarket to grow the market.

There is, however, one area of the investment cycle that, unlike the retail environment, has embraced the internet – the back-office.

E-servicing and e-sales support are now necessities for the back-office and administration of the investment process.

This is because e-administration delivers a win-win -a win for the provider through cost reduction of around 90 per cent and increased efficiency, and a win for the investor through reduced overheads and charges. This is most starkly illustrated in product areas such as stakeholder pensions where the cap on charges makes e-servicing a necessity.

So, the e-revolution has arrived but it has arrived in the back office. In the front office, meanwhile, the customer remains king, and the customer has chosen a multi-channel option for his financial services.

The customer wants to use the internet but he also wants the branch, phone, post and face to face. Multi-channel distribution is the key to overall success for product providers.

Online fund supermarkets appear to prove that online only is still viable but advice remains a significant att raction – if not a necessity – for the investor.

The online supermarket therefore becomes an introduction for an offline consultation and sales process, not an execution end in itself.

To reap the benefits of the e-revolution, financial services retailers, producers and distributors must have an internet channel but they must supplement it with offline channels.

As you can see, I am not ready to predict the demise of the IFA. Get into the mind of the British consumer – which is what intermediaries do best – and this message comes through loud and clear.


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