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Death in zenith?

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&#39 likely buying patterns in a

depolarised environment.

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

delivery channels.

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 £50,000.

Encouragingly when asked if they would be prepared to pay fees of around

£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

The Exchange.

He can be contacted by email at

Tel: 020 7935-2599

Fax: 020 7935-2995


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