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Online services here to stay

Last week, I closed with the proposition that, provided it is not killed off by the Govern ment and the FSA, I believe the IFA channel as we know it will probably cease to be the dominant distribution channel for UK personal finance products around 2007/08.

At the same time, I recognised that the most likely successor to the crown of dominant distribution force is a new form of IFA.

The next logical question is how many of the current players in the market will make the transition and be able to prosper in the new environment? Judging by the reaction of many practitioners to a deb ate at last week&#39s Sofa conference, sadly I fear the answer may be all too few.

The session entitled, The Future is Bri ght, The Future is Online, was billed as a gladiatorial confrontation between Paul Smee, of the Association of Indepen dent Financial Advis ers, advocating the role of the traditional adviser and Ben Goss, of online IFA Sort.

Any one, however, who expec ted a gloves-off confrontation bet ween the two parties would have been bitterly disappoin ted.

Goss began by ann ouncing that his organisation had been acquired by mPow er Europe, the recently formed sister company of mPower the big gest provider of online adv ice services in the US. Pers onally, I am a big fan of what mPower has achieved in the US and see its entry to the UK market as highly beneficial for consumers, advisers and product providers.

According to Goss, 7.4 million Americans now receive financial advice using mPower tools via their relationships with 22 major financial institutions including American Exp ress, GE and Credit Suisse.

He was very clear in stating that mPower sees such automated tools as complementary to the conventional advice process and that their business in the UK will be supplying such tools to financial institutions and IFAs.

As I have identified before, this type of technology will enable IFAs to drive down costs to an unprecedented degree. It will provide the potential to drastically reduce the level of remuneration, either by fees or commission, it is necessary to receive from a client to operate profitably.

This delivers a mechanism through which advisers can greatly widen the spread of consumers they can assist. With the dawning of stakeholder, there can never have been a better time for such services to become available.

It is worth remembering that mPower&#39s US origins were in a business known as the 401(k) forum. This foc used on helping people understand and manage the 401(k) pension schemes that are, of course, the template that the UK Govern ment has used in designing stakeholder.

These e-enabled advice services will allow those businesses that embrace them to offer quality advice, to deliver advice faster over a range of media including websites, laptops and notebooks, and to do so using in a fully compliant manner.

This cannot be a bad thing. As Smee pointed out, of all the thousands of IFAs he has met in his first 14 months at Aifa, a common complaint has been that they are all overworked. Too much time is invariably spent on administration and particularly compliance. If technology can reduce this burden and increase the amount of time that can be spent dealing with clients,this must be a bonus.

Both speakers recognised that technology has an essential role in the future of financial advice but that equally, both now and for some considerable time into the future, technology will not replace conventional advice but complement it.

After hearing key figures from both sides of the equation substantially agreeing the way forward, I was amazed that the general reaction from the floor of the meeting. With out exception, each question was effectively a challenge to, or rejection of the points being put forward by Goss.

Reading between the lines, what each of the questioners was saying was “you don&#39t understand” or “things won&#39t really work like that”. One delegate suggested that the computer in an IFAs head was capable of doing things that a PC cannot.

Certainly, the brain is a very powerfully information processor but it can only handle one person&#39s thoughts at a time. By compa rison, automated advice systems can contain the sum of the know ledge of vast numbers of experts.

Another question suggest ed that nobody had found a way to be remunerated for providing financial advice online. This surprised me as Nic Cicutti of FT Your Money had pointed out that, at the peak of the last Isa season, over 1,000 consumers a day were using the Sort online advice service. Given their normal charges of between £80 to £100 per product, that sounds like a reasonable inc ome stream to me.

I cannot recall seeing such a negative reaction to someone putting forward ways in which advisers could meet the challenge of a changing world.

Having spoken to other delegates after the debate, I was reassured to find that I was not the only person who was similarly appalled. One well known IFA I spoke to later described the audience as “a bunch of Luddites”.

Were it not for the fact that every day I am meeting IFA firms which are not just planning but actually putting e-commerce at the heart of their business and their future plans, I could have become massively discouraged by all I heard at this event.

This would have been a great shame as Sofa had clearly gone to a great deal of trouble to find an excellent panel and subject.

Services such as those to be offered by mPower will radically change the way people get financial advice in the UK. I am equally confident that those IFAs who embrace them have a very prosperous future ahead of them.

Sadly, listening to some of the questions put forward in this debate, there are still many in this industry who want to convince themselves that the old ways are the best and nothing will ever change. To me, they sounded so like the shop stewards from Brit ish Leyland in the 70s, determined to stick to old working practices whatever the cost.

Just like the British motor industry over the last two decades, financial advice will reinvent itself over the next few years. The future is bright, the future is online – you just have to decide if you want to be one of those who will benefit.


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