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No idle threat

The supposed threat to the traditional IFA posed by the internet has passed.

The demise of so many dotcoms has proved the internet has little support from the public as a sales channel.

To paraphrase Professor Michael Porter of Harvard Business School: “The threat of technology-driven disintermediation, the elimination of the middleman, has disappeared before the word even made it into the dictionary.”

We can put away our HTML manuals and consign all those forward-facing, slash-ridden URLs to history, right? Anyone who believes that to be the case has seriously misread the situation.

While many of the pure dotcoms have gone to the wall, the lesson of the past year is that the internet is an increasingly essential medium as part of an integ-rated multi-channel (bricks and clicks) distribution strategy.

It is true that today the vast majority of consumers are not prepared to make a significant purchase through an internet portal but increasingly the internet is seen as an important source of pre-purchase information. Over 90 per cent of Americans use the internet to research their next car purchase although only 5 per cent buy online.

Last year in the UK, 33 per cent of internet users researched financial products online, seeking quotes for products such as mortgages and insurance although, again, only a very small percentage purchased their mortgage online.

The internet provides consumers with boundless choice and the plethora of fund supermarkets that have sprung up in the last year offer a bewildering amount of information.

The internet is fast becoming the de facto pre-purchase research tool while the purchase continues to be made through traditional channels. Although today the internet is primarily a marketing tool,I believe over the next two years we will see a fundamental change in consumer behaviour with regard to financial products, with the internet becoming as important, at the very least, as the face-to-face and phone channels. There are a number of factors that will influence this behaviour.

The most obvious is usage and consumer confidence. Internet usage continues to grow on a daily basis. There is currently an estimated 16.4 million adult internet users and this is expected to increase to 25 million by 2005. As usage increases, we will also see a growth in confidence and a steady move from low-value purchases to higher-value products, including financial services.

Increasingly, the public will expect to use the internet as a post-sale as well as pre-sale tool. A number of companies (for example, DHL) provide customers with online customer service facilities such as post-sales tracking information.

Clearly, financial products are particularly well suited to this. There are already a number of public services, for example, Moneyextra, providing real-time portfolio monitoring and modelling. The consumer will increasingly expect to have access to such services to monitor the performance of financial products.

The move towards full integration between face-to-face, phone and internet channels will revolutionise the financial services business model. According to a new report from Forrester Research, UK retail banks&#39 and building societies&#39 web propositions will fail unless they are part of an integrated multi-channel strategy.

Across all industry sectors, old world organisations have found their physical outlets have become more valuable since they have integrated an internet channel. A major US pharmacy which implemented an internet service still found the vast majority of its online customers preferred to visit the local store to collect orders. In our market, consumers will increasingly come to expect the choice of interacting with their financial adviser face to face, over the phone and through the internet. Furthermore, they expect consistency of information regardless of the transaction channel.

I believe that the biggest single driver in customer behaviour will be the availability of personalised online advice rather than simply an endless choice of products.In the US, it is estimated that over seven million people are already getting financial advice online.

In the UK, we are already beginning to see the first simple online “calculators” and “virtual advisers” with Virgin Money&#39s seven rules of saving. We can expect to see far more sophistication being delivered through rules processing software ultimately enabling the consumer to generate personalised best advice online.

Initially, this may encompass only simple investment products. However, the technology exists to support a full financial planning facility, including current portfolio optimisation. Once this becomes pervasive, the consumer will have the facilities to analyse their own financial needs, gain advice based on their personal circumstances, make an online purchase and track the resulting performance.

Research shows there are four million affluent households in the UK. The high-networth individual is often described as cash-rich and timepoor, the implication being that they will happily pay more for a high-quality service. They expect a face-to-face service but they also expect phone and internet support services.

IFAs can no longer rely solely on their face-to-face service as a means of retaining and developing their client base. Within the next two years, the internet will become as integral to our business habits as the phone. The availability of online advice represents a threat only if it is not embraced and presented to the client as a complementary service to face to face.

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