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First Direct adopting a twotier system in switch to IFA

First Direct, HSBC&#39s telephone and internet banking arm is ringing the changes with a two-tier entry into the IFA market.

The telephone-based service is set to start up in the middle of January. Its target is to make the bank one of the biggest IFAs in the country, with the aim of filling the gap in the intermediary market left by Halifax IFA which is due to shut this winter.

The bank is aiming to have around 100 advisers which it will recruit internally and externally.

First Direct already has 50 tied agents, which it will look to train to IFA status, while it will also train some employees from scratch.

All the advisers will be paid a salary with bonuses rather than commission.

The service will work on a panel basis offering investment products from 23 fund managers as well as pension and life products from six providers.

First Direct has adopted a two-tier approach.

Clients will be able to get suggestions of appropriate products online after entering their personal details. Further advice will be given over the phone from the First Direct&#39s call centre in Leeds. After 11 years of providing tied advice, the move into the IFA sector will be a big adjustment for the bank.

But chief executive Alan Hughes believes independent advice was the only way forward for the First Direct client base.

Hughes says: “The shift is about First Direct customers and their nature. On average, their incomes are above average and their bank holdings are around 50 per cent more than the average man in the street.

“We have been quite successful at selling HSBC products but we have a customer base that wants a broader range of products. We will be able to meet more of their needs if we are independent and not tied.”

Hughes believes the key to First Direct&#39s success is providing a simple service which leaves the customer in control. This has been the thinking behind the two-tier approach.

Hughes says: “Most online supermarkets are like a cash and carry. People do not want that. Our product will be more like a department store with your own personal shopper.”

The switch to the IFA arena will not come without cost, as First Dir ect must double its business to cover the expansion.

Despite hefty competition from established fund supermarkets on one side and the rest of the IFA sector on the other, Hughes remains confident that doubling sales is well within the bank&#39s capability.

The First Direct brand will be kept for the new service although Hughes says the service will also be labelled under a new name which is yet to be confirmed.

The transactions will be made through a separate holding company and First Direct is also looking at a number of different options for the running of the back office.

There is now a strong possibility that First Direct will become Cofunds&#39 first customer, which would be a big boost for the fund supermarket which is due to launch in the next few weeks.

The product will be marketed heavily in the new year, including television and national press advertising. But Hughes believes the greatest ben
efit will not be won through heavy primetime advertising.

He says: “I do not need to be in the middle of Coronation Street.”

The concept of IFAs delivering advice from call centres is one that some commentators believe is the future of the industry. But although Hughes sees the potential of call centres for his own business, he believes face-to-face advice has a guaranteed future.

He says: “I think there will always be a huge proportion of the market that wants to go into a branch or office and shake hands. I don&#39t think that is going to change. However, I do think that the combination of the telephone and the screen has a lot of potential. The majority of the market offers face to face at some stage, so we are not actually in competition with everyone.”

Services such as First Direct&#39s move into the muddier waters surrounding polarisation issues. But the FSA has taken a fairly lenient line, perhaps providing a signal that changes to the legislation are about to come. Hughes is a mild supporter of polarisation but sees the need for certain changes.

He says: “The advantage of the status quo is clarity. It is clear for customers as well as for the staff of fund providers. My worry about alterations is that they might be more confusing.

“However, when the Office of Fair Trading comes out as strongly as it has to say that polarisation is damaging to competition, you have to take another look at things.”

The service will certainly provide further competition for the traditional IFA market but it is not yet clear whether platforms such as First Direct&#39s will be the future for the industry.

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