I have often thought that you can see most types of business in terms of changes in the nature of intermediation. There is the customer and the product but how do they buy? Over a long enough time span, it may be cyclical.
For example, perhaps we are reaching the end of the supermarket age, which saw a huge set of chains of intermediation wiped out (wholesaler, distributor, local retailer) by the big sheds. Unless we can make free electricity, though, the cost of out-of-town shopping is going to keep rising.
No planner of a new town in the middle of nowhere would design one where most people had to drive miles to do their shopping. More and more people who live in cities are abandoning car ownership. They are probably among those who shop more locally and once you start doing that, you are not likely to use Tesco Express rather than your independent local shops.
We have been here before – the new towns of the 1950s made an early stab at impro-ving urban design. And we have been here before in financial services, where older people still fondly remember avun-cular bank managers who took care of all their financial problems or the Man from the Pru, who did the same for folk on council estates.
In financial services, it is the internet that is reshaping the chains of intermediation. Fund supermarkets wiped out the transactional services of lots of advisers, many of whom used to happily collect 2 per cent or more commission for selling funds. But are we seeing a change here? The raft of people planning to roll out consumer-facing wraps suggest we might be.
How far could this new trend go? There are US sites where you can build your own financial plan using impressive arrays of tools. But you have to want to do it.
And however smart the software, is it really capable of nudging people into the kind of changes in behaviour that good financial planners often instil in their clients? Perhaps most people do not really enjoy fussocking about amid vast lists of funds and research reports to choose their funds. Maybe they will sign up to a service where they can see their stuff online 24/7 but pay an adviser an annual fee to look after them.
More fundamentally, the expansion of the financial services industry has been based on de-socialisation of provision – safety nets, insurance, pensions – which has created new chains of intermediation around products that used to be bundled (think of the total benefits package of the old-fashioned final-salary scheme). If the 99 per cent cannot afford to take care of themselves financially – and most cannot – perhaps they will rediscover the benefits of mutuality. For example, huge funds can do lifestyling better than unbundled products at a fraction of the cost.
The bottom line is that most demand for financial advice comes from the old and rich. We know they will live longer but they will not necessarily get richer. On the contrary, property wealth (a substantial fraction of net worth for most mass-affluent) is down from peak levels and unless you expect the return of wage inflation, there is no reason to anticipate the return of a steady rise in real property values. The grey panthers are going to become conscious of price as well as value if the squeeze continues.
Chris Gilchrist is the joint author of The Process of Financial Planning and editor of The IRS Report