The state of the market and, in particular, distribution were the subjects
of a debate on the former Royal Yacht Britannia recently.
The event, entitled Depol-arisation, the end of the IFA? was the first of
a series o ganised for senior industry executives by IBM, as part of its
Insurance Executive Impact programme, sponsored by Siebel.
A panel of speakers made up of Momentum chief executive Paul Johnston,
Scottish Widows head of marketing and sales (technical) Ian Naismith,
Bristol Business School professor Merlin Stone and myself were joined in
vigorous discussion by many senior life office executives.
Professor Stone began by recognising that presently the IFA distribution
is securing an unparalleled volume of business for providers. He put this
down to several reasons, some market-driven, others demographic.
Maturing contracts, mortgage endowments from the late 70s and early 80s
and 10-year bonds that were very popular in the early 90s, and the exodus
of customers from Equitable Life are all having a significant impact.
At the same time, employers are being forced to offer stakeholder pensions
and, to capture market share, providers are offering levels of commission
that bear no relation to the charges they are allowed to make to members.
Early retirement, with the release of tax-free lump sums and the increasing
effect of inheritance are all serving to distort the marketplace.
While the demographically driven increases may be sustainable over a
period of years, other drivers may not be permanent. There is also the
question of whether the IFA will continue to be the channel of choice for
the majority on business or not.
Given that some of these factors are temporary, there are reasons to
suggest that the IFA channel may currently be at its zenith. However, the
IFA community has been written off all too often in the past, only to
continue to thrive.
To get a view on the future of the channel and to fuel the debate, Mori
had been carried out research on consumers' likely buying patterns in a
This delivered some significant messages that challenge much of the
conventional wisdom in the industry today. Most IFAs tend to believe
multi-ties have little attraction to consumers. The general public, it
would appear, is more divided.
Although IFAs continue to be seen as having a significant role, with 41
per cent saying that was their preferred source of advice, the various
multi-tied channels described achieved 44 per cent total share.
Multi-tie banks took the biggest segment, accounting for 22 per cent of
responses, with other multi-tied advisers at 13 per cent and single-tie
banks on 9 per cent.
The research also showed an overwhelming preference for face-to-face
advice although an increasing number are prepared to consider new media
People are willing to look at ways of getting financial advice that can be
operated at lower cost by providers and advisers. As confidence in
e-commerce grows over the next few years it is reasonable to consider that
these may increase significantly. Already, acceptance is higher if in the
30-44 age bracket or with household incomes of over Â£50,000.
Encouragingly when asked if they would be prepared to pay fees of around
Â£100 an hour for advice, 30 per cent suggested this would be
acceptable while 47 per cent opted for commission.
It was generally agreed that multi-ties are a fait accompli and many felt
that this could potentially be a good thing for the IFA community.
The suggestion in the original FSA studies of the implications of
depolarisation that this would not lead to significant defections from IFA
status to multi-ties was chall- enged by several people in the debate.
It was acknowledged that many network members had come from a direct-sales
background and the recent influx of advisers from so many recently closed
direct salesforces could easily be reversed if an attractive multi-tie
environment was available.
Some present, myself included, felt multi-ties offer the chance to deliver
products to consumers at significantly lower levels than currently possible
through the IFA channel. The tighter integration between products and
multiple providers achievable through the increased use of technology was
recognised as the key to such economies.
The importance of the online banking relationship as an opportunity to
deliver ideas about new products and the benefits of providers operating
fully blown product supermarkets, rather than just fund supermarkets,
resulted in lively discussion.
Professor Stone particularly enlivened proceedings with a host of examples
on how other industries had met similar challenges and the subsequent
effects on their markets.
Commenting on the FSA he also issued a stark warning, citing the railways
as an example, of how an industry and its consumers could suffer when a new
regulator made excessive use of very wide powers without spending
sufficient time to understand the industry which they are regulating.
He further suggested that the financial services industry and its
customers had suffered as a result of the constant state of regulatory
change in the last 15 years.
Ian McKenna is a consultant and director of the Financial Technology
Research Centre which works for a wide range of industry organisations,
life offices and technology companies, including Microsoft, Assuresoft and
He can be contacted by email at firstname.lastname@example.org
Tel: 020 7935-2599
Fax: 020 7935-2995