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Ian McKenna: Banks will increasingly use technology to attract IFAs’ target market

Ian McKenna MM blog

When Barclays closed its advice arm in January 2011, many on the IFA side of the industry were quick to celebrate what they thought was the bank’s exit from the advice market. Personally I always felt that reaction was more than a little premature. Even at the time there was evidence that this was not so much Barclays surrendering in the advice market, more a matter of it making a tactical retreat to regroup. Even at the time, the evidence was there to see if you looked. For example the bank continued to work with Focus Solutions on a technology offering that already integrates with Barclays’ online banking system.

Against this background I was in no way surprised by this week’s announcement at the Finovate Asia conference in Singapore that the bank is to offer online personal financial management software to its 4.5 million customers, starting in January. Speaking to me at Finovate Asia, Barclays head of social media platforms and servicing, digital banking Simon Shorey outlined the bank’s strategy to use personal financial management as a key tool to enable customers to take greater control of their personal finances and have a better understanding of the impact of day to day financial decisions.

The initial release of the software, which will first be offered to the bank’s Premier customers in December, individuals who would invariably be right in the middle of any IFA’s target customer audience, will comprise five elements. A spending and income tool, the ability to categorise expenditure so that payments to different retailers will be allocated to different parts of a client’s budget summary, budgeting tools which will allow customers to measure their actual expenditure in given areas, the ability to set up savings goals and allocate money from saving accounts towards specific objectives and income versus expenditure analysis. This will all be fed directly via the bank’s online banking system and pre-populated to the personal financial management system.

The second phase of the service will give consumers access to a financial calendar capability to allow them to identify where larger lump sum expenditure will occur over an 18 month period, the ability to set e-mail or SMS alerts should customers exceed their allocated budgets in any area, a “my net worth” summary allowing the customer to create a wider asset and liability statement by entering a wider range of financial information and a “people like me” component which will enable consumers to compare their own situations against peers. This is a technique that is increasingly seen as an effective way of nudging consumers towards financial decisions

A third release will include a range of tools designed to allow customers to plan for long-term life events. Whilst Shorey would not be drawn on the details of what such content might include, having spent much of the last three months studying how personal financial management tools of this type are being used elsewhere in the world, this will almost inevitably include consumer-facing financial planning tools that will cover exactly the range of issues normally addressed by IFAs. At the same time as delivering these tools, Barclays will be extending the scope of its online services to aggregate a wider range of its products so that customers will be able to view a far wider range of Barclays products such as mortgages, credit cards and investments via their online services.

The new service will be delivered using software from Strands Finance, a leading personal financial management software supplier with offices in San Francisco and Barcelona, which already makes PFM technology available to over 10 million customers of other banks such as ING in the Netherlands, BBVA in Spain, PostFinance in Switzerland and Bank of Montreal in Canada. The Barclays announcement was in fact made as part of the Strands Finance presentation at Finovate and whilst my detailed analysis of the Asia event will appear in my next regular Money Marketing column, the company gave one of the outstanding illustrations of how they can deliver enormous consumer value through the use of technology. Strands chief executive Edward Chang shared with me a view that PFM technology will increasingly be used as a key tool through which consumers plan their financial future. If tools like this can be accessed free of charge, in a post-RDR world it can only drive up what consumers will expect of advisers to whom they will pay fees.

A service like this is not, on its own, a direct replacement for financial advice, but it is reasonable to expect that banks like Barclays will use digital delivery to provide significant value-added services to their clients. Exactly this type of personal financial management software is being used as the cornerstone for many of the next generation advice propositions that are emerging elsewhere in the world and are drastically reducing what consumers need to pay to get professional advice. It is naive to believe that similar services will not emerge in the UK.

I have increasing evidence that this will happen here and much sooner than many in the industry think. Any adviser firm that is not able to provide equivalent services will inevitably look like an under-resourced poor relation. This announcement demonstrates why it is crucial for advisers to put technology at the heart of their customer service proposition in a post-RDR world if they are to maintain a competitive advantage.

Ian McKenna is director of the Finance & Technology Research Centre


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Sorry have I missed something here wasn’t there a ruling by the FSA banning execution only platform business and if so surely this same ruling applies to online technology tools that banks may launch. After all what is the difference between an execution only platform and an online modelling tool backed up with a direct investment model. Surely they are the same and if so that the decision by the regulator earlier in the year to restrict execution only platform business applies to both independents and banks. There were several articles in money marketing early on the year about this subject or am I simply just getting this wrong.

  2. Peter – it’s the latter, i.e. you’ve got it wrong. Execution only platform business most definitely isn’t banned! There are some restrictions on product types, and MIFID will almost certainly introduce “appropriateness tests” for the majority of products sold execution-only, but even that won’t come in until 2015.

    You only have to look at the volume of business written execution only by Hargreaves, Fidelity etc to see that this area of the industry is thriving.

  3. To Scrooge

    The only reason why race subject as I remember reading several articles about the banning of cash rebates to advisers who operate execution only platforms. A good example of this is a Natalie Holt article on 27th June 2012 in money marketing called FSA to Ban Rebates for Advisers and Execution Only Platforms

    So if you taking the remuneration away from the adviser if he carries out an execution only platform why is the same not true of Banks. Will the charges for using any products linked to this service be clearly stated and not hidden in a structured product the Banks have been so guilty of selling in the past.

    I like many advisers have many concerns about new bank non advice services as this is clearly just a way for them to carry on selling rubbish products that benefit the Banks more than consumer.

    Oh and while I’m thinking of it at least I am willing to put my own name to a comment rather than hiding behind a pseudonym! Thanks for the additional information in respects to MIFID I will give that a look at some point.

  4. @Peter Herd, I’ve read many comments by you on these blogs, and frequently agree with you plus admire your willingness to be out of step. However, on this occasion you are wrong about EO platforms – they certainly will be allowed to operate and without the commission constraints applying to advised business. The rebate question is another matter which I hope results in equivalence to advised business, but it doesn’t affect the ability to operate.

    On the subject of the article, I differ (not defer) to Ian McKenna for two reasons: 1) the average client won’t find PFM find technology as exciting as he does; and 2) banks have had technology advantages (and as importantly informational advantages) for decades and have never failed to mess up the execution. By the time they ever get their act together, and regain any meaningful degree of trust, IFAs generally will have incorporated technology into their own businesses and use it far better than the banks manage to.

  5. Peter Hicks thanks your supportive words it doesn’t happen very often on here as I often feel like I am a lone voice.

    If execution only on platforms business is allowed on platforms I hope that the regulator will allow it to happen the both independents and banks because at the moment I’m hearing that several networks are not allowing their ARs to do this type of thing.

    I would totally agree with you that the independent sector will probably incorporate this type of business into their models much quicker than banks and building societies who can suffer from the spotlight over the next few years due to their miss-selling scandals in the past.

    The fact is I don’t go out of my way to be out of step with the industry the only thing that I want to see is greater protection for the consumer the benefits the industry and gets rid of some of the bad practices have been going on for far too long. Bank insurance is a good example of this!

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