View more on these topics

Bread without margin

Last week, I looked at some of the issues facing the IFA community in


moving to the pricing structure allowed under the Government&#39s 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


services.


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


pretenders?


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


distribution developments.


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


one-stop shops.


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


equal attention.

Recommended

Wesleyan hike savings and mortgage rates

Wesleyan Home Loans is hiking its mortgage and investment rates following the recent hike of 0.25 per cent in the Bank of England base rate.Wesleyan has increased its standard variable rate by 0.2 per cent to 6.79 per cent from 6.59 per cent.The new rate will take effect for new borrowers from September 15 and […]

Pru to review 300,000 endowment policies

The Prudential is currently in the process of reviewing 300,000 mortgage endowment policies to ensure customers are on track to repay their loans.The life office is currently unsure how many of its customers are facing a potential shortfall. But the Pru says once it has established this figure it will to write to those clients […]

Government publishes final piece in stakeholder jigsaw

The Government put in to place the final pieces of its stakeholder jigsaw yesterday with the publication of its fifth pensions consultation paper.The paper outlines the new rules which will permit parallel holding of personal pensions, money purchase occupational schemes as well as stakeholder pensions.The plans will allow individuals to save up to £3,600 a […]

Standard Life Bank hikes interest rates

Standard Life Bank is hiking the interest rates on its mortgages and savings accounts following the Bank of England&#39s decision to raise its base rate.The move will see the bank increase the interest rate on its Direct savings Account to between 5.25 and 5.45 per cent from between 5.1 and 5.28 per cent depending on […]

2015: a divergence in economic policy?

As the US continues to confound growth expectations and the eurozone’s ‘will they, won’t they’ saga has finally concluded, what are the implications for global markets? James Dowey, Neptune’s chief economist, puts forward his outlook for 2015 and the key considerations for investors.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment