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Mix the old and new

A highly contentious statement at the beginning of a press release is a well known way to attract attention. But you can easily be accused of talking up your own interests.

I fear that Forrester Research may have fallen into exactly that trap with the press release for its recent report Unwrapping UK Pensions.

I am not surprised that the statement: “The internet will transform personal pensions distribution in the UK… providers will integrate pensions with other investments by stripping away the tax wrapper” has had people around the market spitting blood. But while there are many assertions in the document with which I would take issue, there are also some valuable points.

It correctly identifies the importance of providers making use of emerging portal services and XML standards. It even points out that extranets will become less important as organisations which aggregate information from a range of providers add further value for consumers and advisers.

Forrester is correct in warning that the UK personal finance industry should not be blinded by the current success of the IFA channel and ignore other opportunities. But I believe this message has already been received. Life offices are realising that it is the new breed of e-IFA, offering a mix of traditional and new-media-based services, that is most likely to succeed.

To be fair, the report is based on meeting with 30 UK life insurers. Perhaps we are speaking to different people within those insurers?

Forrester has some very forthright views about the future of financial services distribution, based around what it refers to as open finance. This involves financial organisations restructuring themselves into different market segments and offering their own products with those of their competitors.

Its hypothesis is that a discerning public with access to the web will migrate to organisations putting forward best-of-breed solutions, regardless of the products being their own or from a third party.

Ironically, this concept sounds a great deal like independent advice. There is real evidence of such a model being adopted in the US and Europe.

There are also similarities with the new host and adopted product environment now in place for stakeholder and that may be adopted across a wider range of products after the second stage of the polarisation review.

Forrester is right in saying that the emergence of financial services aggregation in the UK will make it easier for consumers to look at their finances collectively with different product wrappers being compared side by side.

There are, however, many steps already being taken to allow IFAs access to exactly this information so it can be replayed to customers online in an aggregated view. More and more life offices are offering third-party fund links within pension and other products.

My main criticism of the document is that while it identifies challenges facing the industry it comes up with little in the way of answers.

By comparison, Cap Gemini Ernst & Young recently shared with me some of its thinking on how e-advice can be used in today&#39s financial services market. Its view identifies ways in which product providers can reuse elements of their existing distribution assets, mixed with a range of new media technologies.

Lower-cost technologies will automate much of the customer-facing relationship. At the same time, IFAs and providers can profile consumers sufficiently attractive from a profit perspective to warrant more use of conventional distribution channels that some clients will prefer.

This blends the best of new and old technologies to deliver products profitably to consumers across a range of channels but only making a channel available to a consumer if the business can be transacted profitably in that way.

This is a major step forward in strategic thinking. The company is still finalising this proposition and I will report on it once full details are available.

If you are looking for a heavily internet-orientated evaluation of the effects of the web on the pension market, Unwrapping UK Pensions will prove an interesting read. However, to any experienced industry practitioner, it will be obvious there is an evident lack of understanding of many of the real issues in the market.

Much of the document also seems substantially at variance with a paper entitled, Online Advice Complements Human Advisers, published by Forrester in the US in March. This opened by stating: “Online advice users are more likely to use human advisers… Online advice will not replace human advisers but free them to perform more valued activities.”

In the real world, the challenge to the industry is how to reuse the wealth of talent and knowledge that already exists in ways that can be profitable in the 1 per cent world.

New technology undoubtedly has a role to play but I would not advocate abolishing all traditional practices yet. While revolution may be good for attracting headlines, evolution is more likely to succeed.


Outside View Robert Reid

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