The internet gives the knowledge for DIY investing but cannot offer expertise.
Technology is shaping all aspects of life, none more so than in the financial services industry. Every day, new websites are emerging, offering new products, better rates, more information and improved service – or so they say.
Marketers and technophiles are converting the empowered consumer, the do-it-yourself financial wizard who no longer needs an IFA's help to manage his financial affairs. But is the technophiles' view of the empowered financial consumer the end of the IFA? Perhaps not as easily as they make it seem.
It is true the amount of financial information available to the average consumer is unprecedented. Websites such as iii, webgator, moneyworld and motleyfool all offer services that give consumers the information to make their own financial decisions without the need of IFAs. The use of these sites is growing, with 1.1 million now regularly visiting iii for instance. These sites are here to stay and they could potentially pose a threat.
Interactive investor recently conducted an online survey asking the question: Are financial advisers worth their sweet FA? Seventy per cent of respondents said they were better off without them while 30 per cent said they still relied on their financial adviser.
The percentages should probably be taken with a pinch of salt. Most of the people who are using sites such as iii are financially savvy and were never likely to use IFAs. However, internet penetration is only at about 25 per cent of the UK population and there is a higher percentage of financially soph- isticated consumers in the present online population than in the population as a whole. The number of less financially adept consumers going online will increase and these people are not likely to leave finances up to their own judgements and the recommendations of faceless websites. They will continue to rely on IFAs for a simple reason – experience.
The internet allows anyone to acquire as much knowledge as an expert in their field. A student can know as much factually as a teacher or the average consumer can know as much about the financial world as an IFA. However, the importance of the teacher and the IFA is in the experience each brings to the table. No consumer can accrue the years of financial experience an IFA can offer. This experience will increasingly be the commodity that consumers will buy from IFAs – the value of a proven track record.
We all want control over our own affairs, and the internet offers that. But most people will still want to have access to expert advice. IFAs will increasingly be relied upon for their advice such as which stocks, credit cards, bonds are the best buys or when is the right time to invest. But the consumer will increasingly take that information and complete the transaction themselves.
This changing role puts the onus on the IFA to develop their knowledge and especially their experience in a way that says to the consumer: “We can add value and experience to your decisions, allowing you to transact with greater confidence.” Things are likely to become more fee-oriented and less commission-based.
They can also meet the challenge of websites such as Etrade, iii and motleyfool by using the web themselves. In the travel industry, the role of the travel agent is similar to the IFA. Both have traditionally been the broker of information and point of transaction in their respective industries. Travel agents have met the challenge of online travel services by going online themselves. This is proving effective as consumers are already aware of and trust their brand names, making it harder for internet start-ups to succeed.
It is clear there is a segment of financially aware consumers who will not use IFAs dueto the availability of information on the web. However, they do not necessarily represent the masses. As more people move to the web and begin conducting their finances online, most will be unwilling to complete transactions without consulting their trusted financial adviser.
Dominic Kemps, Principal consultant,Brann Consulting