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Online advice is the inevitable next step along the road to improved customer loyalty and profitability.

Commentators acknowledge that the weakness of many customer relationship management initiatives has been the focus on cross-selling products rather than delivering added value to customers. The significance of financial advice online as a new way of delivering added value should not be underestimated.

Online advice looks set to replace CRM as the main battleground for financial services organisations seeking to deepen their relationships with customers.

Ready access to good advice has always had more influence than any other factor in securing customer loyalty. But it requires one-to-one contact and cost pressures have made it uneconomic to offer it as a mass-market service across the product range.

The internet offers the facility to provide advice cheaply, quickly and easily as well as providing a personalised service to the mass market 24 hours a day.

From the point of view of customers, the advantages of online advice are obvious. It provides access to personalised advice at a time that suits the customer. It gives an impression of privacy. Some people may feel happier divulging personal details to a modelling system rather than to an IFA. Customers may also find it more convenient to complete a fact-find over a number of days online, adding information as and when it is found, instead of trying to pull it together all at once for a face-to-face session.

The bigger banks were the original drivers behind the development of online financial advice, seeing it as a means of enhancing wealth management services. But there is a strong appeal for IFAs. Some of the bigger players are showing an interest, attracted by the opportunity to reach a wider customer base and to use their time more cost-effectively.

An IFA was the first organisation to be given regulatory clearance to provide financial advice to consumers via a website. The FSA&#39s approval for John Charcol&#39s online Isa fund supermarket was a watershed for personalised advice.

Charcol&#39s virtual advice tool profiles customers&#39 attitudes to risk and recommends a suitable mix of funds within an Isa wrapper. But there is scope for much wider use. The investor profiles created can be used as a basis for recommendations across a whole range of products, services and investments.

For organisations planning to follow in Charcol&#39s footsteps, establishing the necessary systems is not excessively complicated. Customisable packaged software is available which automates both the fact-find process and the delivery of advice, providing audits of investors&#39 sessions. IFAs can themselves reconfigure the software to change the advice given as markets change.

Such software will also soon be available as an ASP service making it accessible without any big initial charge – a cost-effective solution for all but the smallest IFAs.

Transactional capability can be established with similar ease through a back-office link to existing systems or a fund supermarket.

The FSA&#39s requirement for full clarity of explanation of investments and their implications must be met. But a combination of detailed text and graphics can be used to explain clearly the categories of risk and the implications of financial decisions and transactions. Questions can also be restated in different ways to ensure customers have understood what they have been asked in a fact-find and their answers do not have unintended implications.

Face-to-face financial advice will retain its role for advising affluent customers in their choice of investment but online advice offers a number of benefits that make it an effective tool for enhancing customer relationships:

It enables advice to be provided more cost-effectively to a wider range of customers.

It makes it easier to provide informed advice across a broader range of products, which in turn strengthens IFAs&#39 impartiality and independence.

It enables fact-finds to be completed more quickly and conveniently than in face-toface meetings.

Staff in call centres could also have access to a central advice hub or engine that would allow them to provide personalised advice that would be consistent across every channel and fully compliant with regulation.

On this basis it is reasonable to expect that financial advice online will go from strength to strength, quite probably replacing CRM as the central strategy to build customer loyalty.

Cross-selling initiatives that have formed the mainstay of CRM will come to be regarded as blunt and ineff-ective tools compared to the relative sophistication and customer-friendliness of online financial advice.

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