Over the last few months barely a week has gone by without one or other of the banking operations ann-ouncing they are launching a new service to target the “mass affluent”.
Although definitions of the income and liquid assets that confer such status vary, for mass affluent you could just as easily substitute “typical IFA client”.
In the main these new services are not branch-based. They are aiming to operate far more on a “what you want, when you want it and where you want it” basis, with technology forming a large part of the proposition.
Generally these services will include a core banking service and then layer other services on top such as investment advice.
What we are, in fact, seeing is the banking community making a substantial re-entry into the IFA market and looking to use technology to leverage the advantage of regular contact that is an inherent part of the clearing bank relationship.
In developing “new economy” relationships creating high frequency contacts is seen as essential to build up customer loyalty. In internet speak this is frequently referred to as “stickiness”.
The aim is to create a service that users will want to use regularly – online banking is an ideal way of building such relationships. Customers will want to log on regularly to check their balances. When they do, they are by definition thinking about their money. What better time to be gathering financial information from them and possibly offering them advice?
I believe that these emerging players may in fact be giving a good indication of how the IFA of the future may have to operate.
Financial advice has been a highly labour intensive service to deliver, especially if it involves sending advisers out to see customers in their home or workplace.
One bancassurer calculated a few years ago that it was costing them £700 every time they sent a salesman to an evening appointment with a client.
But face-to-face advice does not have to mean that people are physically in the same location.
If you base advisers in a call centre and give them a video link over the internet or digital television, far more clients
can be serviced in a cost-effective way.
This will not appeal to everybody, but if it makes it possible to reduce the cost of advice drastically through lower product charges this may appeal to a significant section of the community.
Financial supermarket-type operations are ideal for this purpose.
Such a supermarket could offer a range of product wrappers – say for short- or medium-term (Isa, single-pre- mium bonds and maximum investment plans) and long-term (pensions) savings.
Back this up with specialist technology to examine asset allocation and customer risk profile. Then bolt on on-line current and deposit accounts. You are already a long way towards an environment that could provide a one-stop solution.
Some providers are currently not that far away. Look at the Skandia product range, its U-select software and the client servicing facilities on its extranet.
While not questioning for one moment Skandia's commitment to independent advice, clearly it has many of the components that new type IFAs might need in the future.
Such services will clearly need to operate on lower charging models than now but that is simply a matter of price. Some providers are not as far from a structure that could accommodate a 1 per cent world for all products as the industry might think.
Remuneration for these new advisers would be more likely to be based on low-level charges on funds under administration or even fixed fees – possibly as low as £150 a year.
Banks are by no means the only organisations who might offer a new breed of IFA-type services. The recent announcement that BSkyB is to set up an interactive service targeted at advisers would also give it the necessary tools should it ever want to go a stage further and enter the consumer-facing side of the market.
If it is possible to remove the excessive costs of operating in a market where client and adviser physically meet and move to a mixture of self-service guidance backed up by call centres staffed exclusively with qualified advisers, it should be possible to provide consumers with assistance for a fraction of today's costs.
Such operations might in fact attract fresh blood into the industry. There is clearly a drastic shortage of qualified advisers in the market. From the limited numbers of new advisers coming into financial services, it would appear few young people see commission-based selling as attractive.
On the other hand, the type of call centres necessary to support remote advice could well prove attractive to a whole new breed of IFA.
With the Government having just thrown a wild card into the game with the changes to polarisation, at least for Cat-priced products, clearly it is hard to form a definite view on the future of the IFA channel. But in many ways I am not sure if this matters.
For some time now I have held the view that IFAs as we know them will probably cease to be the dominant distribution channel in financial services around 2007/08.
Changes in polarisation may affect this date but currently I believe the dominant role of the IFA is most likely to be replaced by none other than a new breed of IFA, operating as a fund supermarket. They will provide clients with on-line services over the internet, digital television and whatever other new technology will by then have become commonplace.
The sheer cost of these tools will mean that only a handful of current industry placers are likely to be able to afford these tools on their own. IFA networks and other support organisations will see their focus increasingly concentrate on delivering technology.
Even with these changes I believe that we will see a smaller number of much larger IFA businesses.
If they can harness technology to allow them to offer a far wider range of services using economies of scale and substantially reduce the level of product charges needed to support their commission, there is no reason why new-look IFAs cannot continue to take centre stage in the financial advice process.
This all assumes they will be prepared to adapt, but adapting is something IFAs have shown themselves to be very good at in the past.