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Self-service stations

As someone who spends much of his time identifying ways that technology can help IFAs, it is worrying to see some advisers not taking best advantage of the opportunities that new media can offer. This was brought home to me when reading the research from Assureweb on the future requirements by users of its IFA Window service.

It did bear out a demand for important consumer innovations such as online portfolios and the ability to offer clients up-to-date valuations online. Comparative quotation services were also seen as desirable.

But other options which I believe could generate significant business seemed less popular. An example is product research tools, which were seen as having the potential to diminish the value that the adviser could offer to their clients.

I suspect they may be failing to recognise how they could use such services to generate additional income.

There seems to be a fairly uniform view among major management consultancy firms that the current levels of commission are unsustainable in the 1 per cent world and an increasing number of actuaries are also voicing similar fears.

Two research projects have highlighted the inevitable effect that this must have on IFA incomes. Cap Gemini Ernst & Young Consulting reported that the majority of the biggest life offices felt uniform charges based on stakeholder margins were inevitable within three years on all products.

KPMG has concluded that IFAs would need to increase business by some 400 per cent simply to stand still in terms of their level of income, such is likely to be the scale the reductions in commission levels.

Most IFAs I know spend as much time as they are able advising clients, so additional income needs to be generated in different ways to conventional face-to-face advice. Delivering services over the web must be one of the best ways of achieving this and also creates the opportunity to deal with clients who in a new low-commission environment may otherwise no longer be economic.

As the Government enforces narrower margins there becomes less opportunity to advise consumers who might not generate the level of income necessary to cover the cost of the work done for them.

In my experience, few IFAs identify if a client relationship will be profitable before agreeing to advise. This is a point that Mr Sandler may do well to consider before pouring scorn on a commission system where wealthier clients subsidise poorer ones.

For a Government that is so concerned with social exclusion, it seems strange that it appears to be trying to remove one of the few situations in financial services where the rich clients pay a little more, enab-ling advisers to help those who are less well off.

There are strong indications that pre-vetting of client relationships will become an economic necessity.

If an adviser wants to find a more cost-effective way of dealing with clients who are at best marginally profitable in the low-cost environment it might be an idea to encourage them to make use of self-service facilities. If a client is able to spend time online first, learning about financial products and then begin using self-diagnostic tools linked to a product research tool, this could help them begin to arrive at a short list to minimise the time that they need to spend with the adviser.

Is this really that different from the process that many firms use where clients begin by speaking to a para-planner who can gather fact-find details and broad requirements before being passed across to the authorised person for the actual advice?

In my view, giving clients access to services that identify the full range of products and providers can reinforce the value they are getting from a qualified adviser.

Such services do not in my mind necessarily have to be free. However, on the subject of cost, the single most disturbing thing that I found about the whole Assureweb research was that the majority of IFAs felt they would not expect to pay an extra fee for a website that delivered additional functionality. Is this a realistic approach?

All too often, I hear IFAs bemoan the quality of software they are provided with to run their businesses. Soft-ware is very much a case of you get what you pay for. If you want a powerful interactive web presence that is going to help you attract new customers and generate additional income, then that is going to cost a lot to develop and will have to be paid for by those who are going to benefit. That must include IFAs.

You only has to look at the tens of millions that have been spent on developing services such as Exchange, Assureweb and M-Link to realise that the current levels of fees being paid by IFAs for their technology are equally unsustainable.

Perhaps it is time to look for a new model. One option might be for the adviser to consider income-sharing on automated transactions. If advisers want technology companies to bear all of the risk in developing services from them, it cannot be reasonable that they are then expected to be paid only minimal flat-rate charges.

Is it now time to consider relationships between advisers and their technology providers where the latter takes a level of income based on the transactions serviced, especially in the case of automated services?

Technology presents probably the best opportunity for IFAs to react to the current challenges and it is unrealistic to expect to receive services for free. IFAs need to decide if they want to share the risk or share the proceeds from innovation.

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