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Make tracks for the net

As we all know, it is the natural tendency for markets to overestimate both the upside and downside of any event. It is, therefore, reasonable to consider that the current malaise around the use of the internet as a method of attracting financial services business is an understandable recoil from the overexuberance of just a few years ago.

Like the railways and radio before them, the internet boom turned to bust and those who invested late are sitting on los-ses from which it will take them many years to recover – if ever.

In the longer term, however, both railways and broadcasting have made a dramatic difference to the way we all live. Sooner or later, we will come out of the dot-coma. The important thing is to get back in as near as possible to the bottom.

I am not for one moment trying to call the bottom of the market in terms of technology stocks. There are many contributors to Money Marketing better qualified than I to comment on this area.

My area is how to use the technology itself to complement a financial advice business. I believe there are strong indications that anyone who may have thought that it was reasonable to delay their implementation of online client-facing advice solutions may want to revise their view.

The latest edition of Egg&#39s report provides valuable food for thought. This summarises research carried out by Mori to identify the willingness of consumers to carry out financial transactions online.

Mori&#39s research identifies that no fewer that 10 million adults, half of all UK internet users, say they have bought or serviced a financial product online.

There is also evidence that an increasing number of people are seriously considering using online services to buy financial services. Small but significant numbers can be seen to be moving in this direction.

In the areas most covered by financial advisers, 10 per cent of those using the internet suggested they would consider buying a mortgage online in the next two years.

Life and health insurance each attracted 9 per cent and 8 per cent for investments and personal pensions.

These numbers may not alter your business radically but I would seriously question if all advisers will be able to deal with such transactions so the market share for those who take the trouble to be able to could be even more significant.

What the Egg report sadly does not address is the number of consumers who already start their financial shopping process online, that is, the research, but revert to more traditional means to execute the transactions.

Egg&#39s research becomes even more poignant when one considers that in June 2000, Forrester identified that after five years of online experience, more than half of European financial consumers were happy to carry out regular financial transactions online.

The internet boom in the UK really started with the emergence of Freeserve and the availability of internet access without the need to pay a fee to an internet service provider in September 1998.

It is, therefore, reasonable to conclude that in the next few years we will see a significant number of financial consumers prepared to make the internet a significant part of any financial shopping process.

If there is one area where my own views are likely to be at variance with the majority of Money Marketing readers, it is the extent to which online services can be used to develop a full-blown automated online advice service.

Conventional wisdom is that people will always want personal contact when buying financial products. Many would say it is not possible to create fully automated financial advice.

While I would not question that, for the foreseeable future, probably the majority of consumers will prefer to deal this way. However, in a world where margins are under more and more pressure, the challenge is to work in a profitable, cost-efficient manner.

If there are consumers who are prepared to buy their financial products this way, I believe they provide a major opportunity for financial advisers to inc-rease their businesses. If it was possible to acquire the capability to service customers in this way on a per transaction or per client basis, who is to say in the post-CP121 world why this could not become a valuable way for advisers to service clients for a defined fee?

Financial advice is a process that requires gaining a clear understanding of the client&#39s position, their attitude to risk, aims and aspirations and guides them to select the products that best meet their needs.

Ultimately, this is on the whole a matter of capturing information and taking the client through a very complex series of decisions.

I do not like calling it a decision tree. This brings to mind the very limited documents created by the FSA in support of stakeholder pensions. It is, however, difficult to get away from the fact that what is needed is to gain an understanding of a client&#39s circumstances, even when they frequently do not understand them themselves, then apply an incredibly complicated decision tree.

If computers can, as they have done, successfully map the human genome, I find it difficult to believe that a totally automated financial advice programme is not beyond possibility.

An early version of such services may already be available to advisers in this country. Last month saw the launch of mPower&#39s UK service to enable automated guidance tools for the selection of Isas and other managed fund investments. This powerful service, designed to be used by advisers with their clients, can enable consumers to identify their attitude to risk and suitable portfolios of investments to match their risk profile.

Although at the moment this deals with only a limited range of wrappers, the company is developing these tools to cover other areas and I believe these could be very powerful in a consumer-facing environment. mPower is at great pains to point out that its UK service is designed to support the adviser.

It is still clear that the vast majority of online financial transactions are likely to relate to bank accounts and the purchase of commodity products such as general insurance.

The greater confidence that extended experience can bring and access to powerful analysis tools and lower costs that can be justified by automated services will encourage more and more consumers to start their financial shopping online. This is an opportunity I believe all financial advice businesses should now, if they are lot already doing so, prepare to embrace.

Ian McKenna is a consultant and director of the Financial Technology Research Centre, which works for a wide range of industry organisations, life offices and technology companies, including Microsoft and The Exchange. He can be contacted by email at

Tel: 020 7935 2599


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