View more on these topics

Scale tips balance

It is hard to think of any document last year that stimulated more opposition from the IFA community than CP121.

A year has passed and a great deal of good work has been carried out, especially by Paul Smee and his colleagues at Aifa, and finally the FSA has come up with proposals on how it will put a depolarised regime in place.

Although clearly the battle is not yet won, there will be many more consultation documents before the year is out that will have an important bearing on how it all works in practice. Overall, I would expect most IFAs to be relieved at the contents of CP166.

Its full effect will inevitably be debated at length but I would like to focus on issues around technology that I believe will have a significant effect on the market over the next few years.

First, CP166 proposed that it should not be possible to conceal the ultimate provider of a product. It is easy to see why, in the interests of transparency, that such a requirement might be imposed. However, I believe there are equally compelling arguments why such a blanket restriction may in fact not be in consumers&#39 interests and could have the effect of limiting the extent to which it is possible to pass on economies to consumers and may even stifle innovation.

This is really an issue about the scale to create economies. In recent years, there have been many examples of situations where providers of one type of financial service have outsourced their entire operation of another type of service to a third party while at the same time continuing to be seen by their customer to offer the service under their own brand. The credit card market is a perfect example.

It is a brave bank that decides that, while they may be experts in the mortgage arena, achieving the necessary market share to be a dominant player in the credit card market may be beyond them.

Some have taken this step and their customers are paying lower interest rates than they would be as a result.

The same economies of scale can apply to many life and pension products. Stakeholder pensions and the whole range of proposed stakeholder products are prime examples.

Financial institutions tend to have big egos. There may be some which will be prepared to outsource provision of a low-cost product to other providers totally but there will be others which will not want to have to admit on documentation sent to clients that another provider is delivering the product.

Life companies guard few things more jealously than their brands. It would be sad if such a regulatory decision inhibited providers&#39 willingness to offer other products that may be more attractive to consumers. If this was the net effect of the restriction, is it reasonable to ask how this was in consumers&#39 interests?

The other issue I want to look at is the proposed removal of any restrictions on the supply of technology and IT services via the indirect benefit rule which, contrary to expectations, is carrying on to the new regime.

I whole-heartedly support the removal of the current restriction. The FSA implies, although it does not say, that it would be in the interests of product providers to provide IFAs and multi-tied advisers with all the technology they need without breaching the indirect benefit rule.

The reason for my concern is not that I do not believe this would be a good thing. Product providers subsidising the cost of technology to advisers has massive potential. However, I believe that as an industry we must be careful how we take advantage of such freedom. It is an opportunity but if the planning is not correct then it could be a dismal failure.

First, I would not support all this technology being delivered to IFAs free. It is human nature to accept freebies but do you use them? Technology should only be subsidised for advisers who are prepared to make a specific commitment to use it. Equally, the advisers need to know before making a commitment to use services that they will improve their working practices and the level of service to their clients.

Before making such an investment, product providers must be certain that, if they provide such subsidies, it will result in economies in the processing of business. Ron Sandler made it clear that one of the main challenges for our industry was to achieve end-to-end electronic trading to take advantage of the economies it can deliver.

To me, end to end means that adviser and provider seamlessly exchange information electronically. All the economies cannot be at the provider end if we are to make electronic trading the norm.

If providers deliver technology which does not meet the need of advisers, there will be further reluctance by advisers about adopting technology.

Before such an exercise can start, we need to achieve a far greater understanding of what will help advisers and providers reap technology benefits. Both parties must invest time and money in developing understanding. In assessing these benefits, it is also important to be sure to deliver a better service to consumers.

Compared with many other industries in the past 15 years, technology has delivered surprisingly little in financial services. What we need to do to change this will be one of the main subjects debated in the technology session at the Money Marketing top 100 IFAs event this week.

I look forward to a forthright debate on the subject and will bring the result back to this column in the near future to share it with those who are not attending.


Noble Fund Managers – Enterprise Venture Capital Trust

Friday, 7 February 2003 Aim: Growth by investing in quoted and unquoted companies Minimum investment: Lump sum £1,000 Opening/closing date: December 19, 2002/April 2, 2003 Charges: Subject to negotiation Commission: Initial 3% Tel: 080 7367 5606

Liverpool Vic cuts payouts

Liverpool Victoria is reducing with-profits payouts by between 13 and 18 per cent due to continuing difficulties in the equity markets. Reversionary bonuses are cut from 4.5 to 3.85 per cent for conventional with-profits and from 4.5 to 2.25 per cent on its unitised with-profits bond. The mutual says the payout on a £50 a […]

SEI trust pushes 5% withdrawals

Scottish Equitable International is urging IFAs to take advantage of the 5 per cent withdrawal facility on life bonds ahead of its possible abolition in this year&#39s Budget. The company has launched the reserved interest trust to enable tax-deferred withdrawals to be made. The product works by establishing a trust which purchases an offshore bond. […]

M&G Investments – M&G UK Growth Portfolio

Monday, 3 February 2003 Type: Oeic Aim: Growth by investing in UK equities Minimum investment: Lump sum £1,000, monthly £100 Investment split: UK equities 98.7%, cash 1.3% Isa link: Yes Pep transfers: Yes Charges: Initial 4%, annual 1.5% Special offer: 1% discount on initial charge Offer period: Until April 5, 2003 Commission: Initial 3%, renewal […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm