Ian McKenna is a consultant and director of The Financial Technology
Centre. He can be contacted by email at: IanMcKenna@MSN.com Tel: 0171-359
565Fax: 0171-359 285
The exclusive news in Money Marketing last week that First Global is to
become the first IFA firm to contract technology services from The Exchange
to operate an electronic IFA service selling life products over the
internet was timely.
It coincided with the Swiss Life/Demos-sponsored e-commerce in financial
services fringe meeting at the Labour Party Conference.
Other IFAs will, I am sure, wish to follow First Global in populating
their websites with real e-commerce tools from The Exchange.
For the consumer to gain the full benefit of such services, the industry
must have the support and encouragement both of regulators and Government
to work out new ways to drive out costs from our industry.
I was therefore delighted to have the privilege of sharing a platform at
the meeting with the newly appointed e-commerce minister Patricia Hewitt,
FSA chairman Howard Davies and Advizas operations director Peter Catt to
debate how e-commerce can revolutionise the financial services industry.
This was the first time any fringe meeting at the Labour conference had
been broadcast over both the internet and satellite TV to various invited
audiences around the country.
But the debate was also special because it enabled IFAs and MPs to rub
shoulders and discuss financial e-commerce issues.
Prime Minister Tony Blair recently stressed the risks of failing to act
quickly enough to meet the challenges raised by e-commerce, and financial
services is no exception.
This gave me the ideal platform to address what I believe is the biggest
threat to the position of the UK as a world leader in financial services –
the failure of the FSA to grasp the need to introduce a regulatory regime
that can adapt to the changes that e-commerce is forcing, not just in
financial services and not just in the UK but globally and in every walk of
There is a perception in many quarters of our industry and the wider
marketplace that e-commerce, particularly infomediaries and financial
services supermarkets, will precipitate the demise of the independent
There is, however, ample evidence from the US that such changes lead to
the need for more advice, provided that the adviser can adapt to the
challenges of the new market and deliver additional value.
To be fair, the days of the cottage industry one-man band IFA must be well
and truly numbered. But, as Blair made clear in his speech to the
conference, the same is true of those individual general practice doctors
who have so far, in a style worthy of King Canute, resisted both technology
and centralised supervision and assistance.
I believe both the current Financial Services Act and the proposed
Financial Services and Markets Bill fail those consumers who most need
Both regimes can accommodate two extremes – either investors must rely
entirely upon their own resources to identify which of the thousands of
ncial products are suitable for their needs, that is, execution-only sales,
or they can consult qualified financial advisers, who will be fully
responsible for the quality of advice given.
The first option leaves the consumer out in the cold, exposed to the
complexities of the financial markets. The second option requires expensive
one-to-one contact with a qualified adviser that must ultimately be paid
for either by a fee or commission.
We need to find a way to offer limited advice that can protect the
consumer in a cost-effective way. Online services are ideal to meet this
need. Why can we not make it easier for people to buy financial products
without undermining the level of consumer protection? IFAs have an
invaluable role to play in assisting consumers but they need to find a way
to automate the sale and purchase of simple financial products.
If a consumer, after carrying out their own research, possibly via an
infomediary site, has identified a product they believe is suitable from
the selling organisation, why can't the IFA use automated systems operating
over the internet or digital TV to ask a series of questions to confirm the
product is suitable?
If at any stage the consumer gives answers which indicate the proposed
product would not be suitable, the sale cannot proceed and the system will
direct them to a human contact that can examine the issues in more detail.
Let us remember the requirement within the current Financial Services Act
for advisers to know their clients' position and needs.
But, if a consumer wants to buy life insurance, do you really have to
understand everything about their pension provision or just the issues
relating to life cover within their various pension arrangements?
I am not suggesting everyone will want such an automated advice process.
However, not everyone wants or needs complex advice and there is the issue
of affordability. If people have relatively simple needs, why put them
through an expensive advice process?
Although the highest level of internet access exists among the most
wealthy sections of society, digital TV is likely to have a far wider reach
across the whole population.
The current analogue network is due to be phased out by 2010. Digital TV
has the potential to be the mass-market financial services delivery
platform of the 21st Century but we need to provide a regulatory structure
that can protect the consumer while driving down costs.
Ironically, an approach along the lines I have just outlined was
identified and proposed by the PIA as part of its evolution report a few
years ago, yet this approach has still to be adopted by the FSA.
During the debate last week, Davies said it was rubbish to suggest that
the FSA intends to publish a 3,000-page manual in about 15 months time, all
built around paper-based processes, on the basis that, as long as any
e-commerce plans can fit around the previous paper-based processes, there
will be no problem.
I am delighted to hear this. I agree with Davies that it certainly would
be rubb ish and hardly supportive of the Prime Minister urging us to face
up to the realities of e-commerce.