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Taking the e-nitiative

Although some financial services companies have dabbled with the internet

for several years, it is only in the last few months it has begun to be

employed to transact business.

Direct providers such as Direct Line and Virgin have led the way with

genuine e-nitiatives designed to provide real value to consumers and

streamline their internal processes.

In the IFA market, progress has been sluggish, with very few IFAs or

providers publishing websites which function as anything more than

electronic brochures. Given our industry&#39s historic dire attempts to master

technology, this is perhaps not surprising but unless this situation is

resolved there are likely to be some painful surprises around the corner.

In many other industries it is the business-to-business sector that has

seen the most rapid growth in e-commerce – and financial services will

ultimately be no different. If existing players cannot deliver, it is not

difficult to envisage a new market emerging in the form of fully electronic

product providers and independent distribution.

Although online services such as The Exchange and AssureWeb are starting

to make inroads, there remains a huge void when one wishes to transact

business, which is a direct result of there being no generally accepted

business model for this market.

There are a number of reasons for this but it is difficult to avoid the

fact of IFA technophobia and their over-reliance on product providers to

generate solutions for them at no cost. Bleatings about the number of

systems that need to be mastered are just nonsense. If individuals are able

to cope in the direct world, why on earth can a group of professionals not

do likewise?

Technology is as essential to the business of IFAs as product knowledge

and the ability to give advice. The problem at the moment is most IFAs are

faced with many of the threats posed by technology but are embracing none

of the opportunities.

If this does not change, IFAs will be unable to provide any added value to

their clients ata reasonable cost and will ultimately haveno market. The

costs of advice and the burden of IFA support will be swiftly exposed and

some answers will need to be forthcoming.

While a lot of internet debate is centred on low costs, the real issue is

one of value. It will become apparent to the end-investor just what

everyone in the chain is earning – or at least receiving – and each party

will be forced tojustify what they are bringing to the party.

Greater product transparency and the slow but relentless shift away from

commission cows such as with-profits bonds will result in the need for IFAs

to demonstrate they are adding value to their clients&#39 financial planning.

It will no longer be acceptable or defendable, for example, to take 6 or 7

per cent initial commission from a middle of the road with-profits bond.

Investors will rapidly become aware that this product is many times more

expensive than, say, a tracker fund sold direct and yet is intended as a

halfway house between deposits and equities.

Likewise, the product provider will needto be able to justify the implicit

charge being deducted. It is not unreasonable for investors to question why

annual bonus rates continue to languish at around 5 per cent while theUK

market returns nearly four times as much on a regular basis.

IFAs are in a position to embrace the internet and product changes that

will emerge as technology develops. But to profit from these opportunities,

they will need to take a serious and radical review of their businesses.

As charging structures evolve and tighten and more level commission

structures become essential, IFAs need to take a long-term view. It is

accepted wisdom in almost every other industry that client retention is

more profitable than client acquisition. The internet provides IFAs with

the perfect platform to restructure the way they operate.

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