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Grasp e-commerce nettle

Ian McKenna is a consultant and director of The Financial Technology

Centre. He can be contacted by email at: 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&#39t 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&#39 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.


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