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Direct threats

Money Marketing broke the news last week that the former founders of Webline, Park Row and Quay software are teaming up to launch a direct-to-consumer wrap platform.

The wrap proposition, called, will launch next month.

With the rise of transactional websites and do-it-yourself applications like this latest offering, are advisers in danger of losing ground in the battle for customers?

Financial Technology Research Centre director Ian McKenna does not think so as long as advisers have a decent online presence.

He says: “Launches like this make it essential that advisers have their own highly functional, consumer-facing online presence. We live in the information age. Consumers expect to get the information they want, when and where they want it, and in the format they desire.”

McKenna says few organisations can survive as cottage industries in the 21st century and believes there is a role for IFA networks and support services.

“An adviser business trying to operate on its own is likely to find the world is a cold and lonely place. They need to be part of a network or support service group. This should be the death knell for those advisers that like to try and play with their own client management systems.”

McKenna notes that advisers must buy in the tools they need and says if they don’t get their customer information on to these platforms they will not survive.

It was inevitable that companies would go direct to the consumer and McKenna argues that as long as advisers focus on differentiating themselves from these offerings they will survive.

He adds: “It was inevitable that this would happen so you cannot see it as a negative. The retail distribution review will only accelerate the process which is a positive thing.”

Banks and life insurers have also started taking a stronger line to try to encourage consumers to come and talk to their advisers, riding on the back of the credit crunch effect.

NatWest has launched its “SatWest” campaign which puts over the message that many of its branches are now open on Saturdays and consumers can come in for a financial review.

A current Lloyds TSB advertising campaign encourages people to come in for a financial health check-up.

Advisers cannot compete with huge marketing budgets but Informed Choice joint managing director Nick Bamford does not think advisers should be worried.

He says: “I do not think that big product providers understand what consumers want so I do not believe there is much of a threat from them. But direct-to-consumer propositions are a threat to advisers who believe consumers are incapable of implementing transactions for themselves.

“If my proposition is that I am a financial planner and give information to people so they can make good decisions and then go away and implement these themselves, then I am not at risk. But it could be a threat to certain aspects of the advice chain.”

Bamford thinks it would be good if the charging structure for worked on a flat-fee basis with charges for use of the tools, rather than a percentage charge. He says this would show the platform was truly consumer-facing and not just looking to maximise its assets under management.

“I think it will be an empowerment of the consumer – they will come to us for advice then go off and do the transactions themselves. It was bound to happen and I think it is a good thing. There has been a migration of profitability away from the manufacturing side of things towards the distribution chain.”

Axa has recently entered into a tied distribution agreement with Clydesdale and Yorkshire Bank to gain access to the banks’ 2.3 million customers. The financial planners will use Axa’s wrap platform Elevate to manage clients’ investment portfolios and the FPs will move from a multi-tie arrangement to a whole of market proposition.

Bamford agrees that advisers will need to raise their game to compete with the likes of Axa.

He says: “The problem with marketing is that people think it is something you do when you run out of work but that should not be the case. Marketing is something we do every day of the week. Advisers should do more of it and should be more consistent with it.”

Money Portal head of distribution strategy Alan Easter says he is not threatened by competition from direct-to-consumer propositions.

He says: “New entrants will not be a threat to us because people will always need advisers. Willis Owen is our direct to consumer proposition and we had £1bn of assets sitting on the platform earlier this year. Consumers get to a point where they realise they do not really know what they are doing. When they get to a decent level of income, then they will move across to our advised business.”

Easter feels the advisory market will be the winner from the increased marketing of direct channels.

“Let us not forget that an IT system is simply a tool. You have to have a consumer that wants to transact in that way.”

Willis Owen has two distinct types of consumer – the grey market and the twentysomethings. Everything in between is serviced by advisers, according to Easter.

“There is a bigger demand than supply at the transactional end of the market. We need to do something about that supply difference. I think direct businesses are great – the more the merrier if you believe in the free market economy. People will always need advisers.”


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