One of the most noticeable trends in advance of the RDR is the number of IFAs that are looking at launching into the execution-only business.
With many adviser businesses segmenting their client banks to weed out unprofitable clients some businesses want to be able to still offer some level of service to their clients, while others have concerns about potential clients being unable or unwilling to pay for a fully advised service.
Earlier this month, Informed Choice announced it is to introduce an execution-only investment platform in March next year and Plan Money is launching its non-advised website, Plan Direct, in January.
This was followed by Openwork also announcing its imminent move into execution-only.
Informed Choice’s new offering will enable clients to purchase investment products through the website without having to go through an adviser and managing director Martin Bamford says the aim of the website is to introduce new clients rather than cater for existing ones.
He says: “We don’t think it is going to be appropriate for the typical clients we already deal with but we do see a lot of people out there who are in the wealth accumulation stage, so people who are starting to invest money and want to make their own decisions, we want to cater for them as well.”
Plan Direct is going to concentrate on protection initially by referring clients to price comparison website payingtoomuch.com. The client is able to receive a quote and if they wish to proceed further they will be transferred to Plan Money in order to purchase the product.
Plan Money co-director Peter Chadborn says the motivation behind Plan Direct was the need to ensure low-value clients still received a service. He says: “It all links in nicely with the RDR but mainly we were motivated by how we saw the market changing and we don’t want to be forcing clients to jump through regulatory hoops for they might perceive to be just a simple transaction.
“We thought there has got to be a way to offer an automated adviser solution to compliment the face-to-face advice that we will continue to do.”
By teaming up with payingtoomuch.com, Plan Money has expended its offering to clients and is now providing general insurance services such as motor, travel and home insurance. Chadborn says he did not consider these areas initially but as the technology was available, he saw as a great opportunity going forward. Chadborn also says Plan Direct will add investment and annuity options in future.
Although launching services online seems a natural step for some advisers in the potentially struggling market, some feel it is not without its risks.
Hargreaves Lansdown has perhaps the most successful execution only financial services business. Head of pensions research Tom McPhail says: “It’s an obvious market opportunity given the likely impact of the RDR. I think it’s not as easy as it looks and to get all the elements of the formula right in terms of marketing compliance, customer service, price etc and is a constant challenge so I think it will be interesting to see how such propositions develop through the course of 2013.”
Needanadviser.com managing director Ashley Clark also says there are potential pitfalls for anything other than the most basic level of product or service.
He says: “The consumer is ready for online propositions. The difficulty crosses-over where it can only be plain vanilla products. I think it is difficult for pensions, not for the plain products such as stakeholder, but given there are nine different tax regimes for pensions it is a disaster waiting to happen.”
Although Clark believes advisers need to be looking at online propositions for clients, he raises a point that advisers will end up competiting on price alone.
He says: “There will be those platforms who do it on nil trail commission and what that means is that effectively the management charges on adviser A’s platform could be 50 per cent cheaper than adviser B’s platform. When it is in the public domain where people can see it online, as well as it being a positive thing as a service to your clients, it also leaves you wide open to losing your clients as they can get that service elsewhere and possibly cheaper.”
However, regardless of the potential risks, it could be argued that with constantly evolving technology and the increasing dependence on web based services, advisers cannot afford to dismiss the idea.
Chadborn says: “I think by large the advisory market will be fairly slow to go down this route. Nearly all advisers and IFAs we have spoken to about the problems for servicing low transactions said they just won’t service them. So they have either not thought of doing this, or thought of it and dismissed it.
“Most IFAs who we show what we’re doing say that isn’t right for them. The ones who are anti non-advice or who wouldn’t want to do anything online are the ones who have got bad websites, whereas you look at ours and see we have put a lot in to it because we want to represent the brand.”
McPhail, whose online business within Hargreaves Lansdown has been running for more than ten years says: “It’s been an evolution. Increasingly we are doing more of our work through smart advice apps now, so we are actually migrating away from online again. I think that process of evolution and development will continue but we’re just not sure in which directions yet.”
Clark believes that post-RDR, advisers must present a degree of online offering but he says the main competition in this area will not be other advisers.
He says: “Our biggest competition by far will be the banks. We’re not really competing with each other, we’re very much competing with the non-advised platforms that are on offer.
“That is the battleground. IFAs have to have websites, contact and functionality that is better than others. If they don’t they will lose against the banks.”