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Click on to a new deal

The internet is all about empowering the consumer and most of the new

services on the web target the consumer directly. Many IFAs still see it as

a threat to their business, fearing the accessibility of the medium will

erode their position as the first point of reference for investors.

In 1998 an estimated 1.1 per cent of UK households shopped online, by 2002

this is expected to rise to almost 11 per cent – that is over 2.7 million

households. The rise of the internet has led to a host of new financial

service providers springing up on the web. Some products are ideal to sell

via this medium. They avoid the problems faced by many clicks and mortar

companies and this has resultedin established players and newcomers

crowding on the web to offer financial services. Internet-based financial

service companies are both rebranded offshoots of est-ablished providers,

such as the Co-op&#39s Smile, Pruden-tial&#39s Egg and independent start-ups such

as First-E and

However, IFAs should take care not to overlook the opportunities the new

services may provide. Some of them, such as online broking, may be

successfully integrated into the online offering provided by IFAs.

Increasing numbers of IFAs are strengthening their online offerings,

recognising the internet enables them to be always accessible to their

customers. Some have even gone as far as establishing services which enable

their customers to buy shares through an email service. The request is

emailed to the IFA/broker who then executes the trade.

The trend towards online broking – there are now 190,000 online trading

accounts – and, in particular discount execution-only broking, is opening

up opportunities for IFAs to broaden and improve the services they offer.

Execution-only brokers provide a simple service. They process trades. It

is a service which complements rather than competes with the primarily

advice-based service provided by IFAs.

Investors are unlikely to abandon all investment products and turn only to

direct equity investment. Directly held shares are much more likely to form

a relatively small part of an individual&#39s portfolio.

By working in partnership with an execution-only broker, the IFA is able

to offera wider range of servicesto their clients while ret-aining their

position as the portal for all wealth management services.

The greatest advantages may be offered by online execution-only brokers

rather than email or phone services. For the investor, an online real-time

broker ensures shares are bought at the price they are when the decision to

buy is made. Furthermore, there is a tool which enables investors to track

the value of their portfolio, and its component shares, at any time. Such

tools may be easily integrated into other wealth management monitoring

services which the IFA may offer, even if they are extremely simple and


By linking up with an online execution-only broker, an IFA is able to

offer clients a broader and more complete wealth management service. Some

IFAs will not mind providing their clients with access to a third party but

others may be reluctant to introduce clients to a service which is

independently branded.

Such IFAs should cons-ider buying in a white-label service which can be

rebranded under their name.

The trend toward online execution-only services which offer a simple

service at a low price is commoditising the service. Such brokers, whose

income comes solely from processing trades, are likely to be more

interested in generating large volumes of transactions and consequently

very interested in providing such a white-label service to brokers with

established brands and customer bases.

By offering such a service IFAs can ensure they retain their position as

the wealth management portal for the vast majority of their clients.

There are some key issues to consider though when planning a partnership.

First the branding. The IFA should ask himself if he wants to work in

partnership with an existing broker or would rather work with a

white-labelled product.

Then there are the charges to consider. In view of the anticipated

downward pressure on online broking charges, IFAs need to think about how

much they want their clients to be charged for the service. As well as

asking what the implications are of charging significantly more than the

cheapest services out there. While no services pay commission, some will

price the service to accommodate your professional advice.

IFAs should also check whether the proposed service will enable them to

keep track of how their clients&#39 investment performance at any time and

whether the broker&#39s system can be easily integrated with any such tools

they may already be using. A further consideration is the breadth of shares

available and which market-makers are used.

As far as interest rates are concerned, IFAs need to establish what rate

the broker pays on cash balances within the account and how they compare

with other brokers/ current accounts.

Finally, IFAs should find out how easy it will it be for their client to

transfer shares across from accounts with other brokers and whether there

is a charge for this.


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