Last week, I looked at some of the issues facing the IFA community in
moving to the pricing structure allowed under the Government's proposals
for stakeholder pensions. This will deliver quality financial services
products to consumers at a fraction of their current margins, even if some
product providers choose to circumvent the IFA in so doing.
Although I believe the more enlightened product providers will recognise
the value added by the IFA, there are certain issues raised by stakeholder
pricing that are difficult to ignore.
Essentially, stakeholder pensions and Isas prove it is possible to deliver
financial products at a fraction of the margins accepted by consumers in
the past. The IFA community is built around delivering services to those
who have the wherewithal to afford products priced considerably in excess
of the margins that the Government finds acceptable. How then, if we can
provide cheaper products to those with lesser incomes, can existing price
structures be justified to more affluent clients?
In practice, the lower margins delivered by stakeholder and similar
products will drive down acceptable margins within all products. Just as
electronic servicing facilities are the solution to helping the currently
financially disenfranchised, they represent the only way forward for the
high-net-worth market. The more discerning consumers will increasingly seek
out better value for money from those who provide them with their financial
Over the last year, I have given several warnings of the new competitors
IFAs will face. Many of these have now arrived and, over the next few
months, will be competing head to head with traditional advisers for their
key clients. Barely a week goes by without the announcement of new low-cost
financial services providers. E*Trade, Egg, First-e and many more are now
setting out their stalls, offering an increasingly complex range of
products to consumers. How can traditional IFA players react to these new
The answer is simple but will require close collaboration between product
providers and IFAs. In the last couple of months, I have had first-hand
involvement in the moves to deliver electronic business services for bond
products. This has been achieved by an unprecedented level of co-operation
between life offices, a small number of national IFAs and software
providers. If this new business initiative, previously reported in this
column, has proved one thing, it is that the IFA can still drive
I must give due credit to the chief executives of the six life offices
originally invited to support this initiative – CGU, Legal & General,
Norwich Union, Prudential, Sun Life and Scottish Widows – for responding so
positively to the IFA call to action.
Also, on the IFA side, Peter Catt of Advizas, Nick Johnson of Hifal and
Keith Webb of Towry Law are doing a sterling job on the same project. All
this, of course, could not be achieved without the invaluable guidance and
facilitation being provided by Origo.
But before anyone gets too comfortable, the current effort is still not
enough. The present group is working towards delivery of electronic
business services in the bond area. I am already in conversation with
several life offices, IFAs and technology providers looking to develop
parallel projects in other product areas. In business volume terms, those
seeking to participate in these additional initiatives, currently covering
unit trusts, mortgages and pensions, will gain first-mover advantage, with
all that brings, and I applaud them for their vision.
However, this does not address the most essential part of the IFA process
– client servicing. You only have to look across the Atlantic to see the
level of service that all clients will expect in the near future. US
clients can look up the value of their holdings
24 hours a day, seven days a week. They can review the performance of
funds, look at alternatives and switch at their own convenience. This is
easy if you are carrying out the transaction via a single product provider.
These are just the services that many of the fund supermarkets will be
offering in the UK before Christmas.
You only have to look at the number of product providers moving to adopt
multi-fund links, along the lines of the Skandia model, to recognise the
number of life offices making contingent plans for a step-change in the
distribution model potentially driven by online trading.
Perhaps this is something the Office of Fair Trading had in mind when
drafting its recent report suggesting the desirability of multi-ties in the
managed fund area?
If IFAs cannot deliver similar facilities, but fully supporting the wide
range of product providers, we run the very real risk of the superior
service offered by IFAs appearing inferior to technologically more advanced
We desperately need to see similar resources as are being allocated to new
business devoted to client servicing. A number of big regional IFAs have a
desire to develop a service to meet such needs. Any other firms or life
offices with a similar interest should contact me so we can give this area