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Virgin good, IFAs bad?

Fascinating issues relating to online personal finance were examined by a wide range of speakers at the recent Forrester UK Retail Finance Forum.

For me, none was more fascinating than the presentation by Paul Pester, managing director of Virginmoney.com. However, I suspect the subject of my interest was not one he had intended.

Specifically, when it comes to online financial websites, I am increasingly gaining the impression that the application of regulation owes more than a little to Napoleon and the rest to the occupants of Animal Farm.

Virginmoney operates a website that allows it to provide details of a wide range of products and enables customers to use – in Pester&#39s words – a series of decision trees to compare financial products such as Isas, unit trusts and mortgages.

Site users are then able to click through to so-called “e-ssociates” – product providers with which Virginmoney has agreed special terms. Customers can request application forms from the provider and Virginmoney is paid for having generated the lead.

To qualify as an e-ssociate to provide unit trusts, for example, providers must be able to show Lipper bronze medal standards or better for both performance and consistency and agree to the removal of all up-front charges.

The process of restricting those providers whose products can be accessed over the site was identified by Virgin as advantageous to all three parties to the arrangement – the client as it brings in minimum standards, the provider as it pits them against less competition and Virgin as the greater the volume of leads to any provider, the stronger its negotiating position.

Personally, I see nothing wrong in this approach, assuming the tool used to give guidance is suitably rigorous. Tools of this type are currently in their infancy in this country. However, look at the equivalent tool now in widespread use in the US and it is not difficult to argue that it can present better value for money to some consumers than conventional face-to-face advice.

Virgin says its site is not classified as giving advice. In the example I put through the system last week, however, I was only offered a single e-ssociate to meet a particular criterion. Other names of providers were given but shown in a separate column. I have to say the output did give something of the impression of a single product recommendation.

What concerns me, however, is that I have come across IFA firms keen to give similar levels of guidance, who have been informed by the regulators that such an approach would be considered an advised sale and, consequently, they could be res-ponsible for the advice.

The whole issue of decis-ion trees is a fascinating one. The Government seems to love them so perhaps they are OK. But why are there so many rumours doing the rounds that the FSA&#39s own lawyers are worried that, ifit publishes decision trees, it is giving advice – somethingit is not authorised to do.

I cannot contain a wry smile at the prospect of the FSA having to act to stop itself giving unauthorised advice.

This is not the only situation recently where the regulatory approach appears somewhat less than consistent. A few weeks ago, the FSA announced that it had notified a number of news-based internet sites that they could no longer reproduce share tips as they were not actually authorised companies, nor did they benefit from the exemption that applies to newspapers.

The irony was that these sites were only reproducing share tips that had appeared in newspapers and the papers themselves were still ableto publish their share tips on their websites.

I am not for one second seeking to question the validity of the current exemption from regulation that print-based publications currently enjoy. I know many in the industry who would and all I can say is – you try to summarise the finer points of, say, an FSAVC in 500 words in just a couple of hours.

New media, on the other hand, is a whole new ball game. It does allow the space for detailed additional explanations and should not any organisations targeting the consumer with specific financial information all be subject to consistent regulation, regardless of what other communications media may or may not sit within the same ownership?

Failing this, there must be the implication that any non-regulated organisation wanting to comment on issues that would normally require authorisation should simply set up a print-based publication at the same time.

I believe with a passion that the future of financial services in increasingly online, whether as a support mechanism to face-to-face advice or as a primary communication channel. I do not think it is unfair to say, when it comes to providing public domain information to the industry on what the FSA does and does not consider acceptable, so far the regulator has simply failed to deliver.

E-commerce is moving at an unparalleled pace into all areas of our lives. The Government has repeatedly stated how important it is to the whole nation to be a global leader in the field – while at the same time passing tax laws and information disclosure regulations which will drive both IT professionals and internet service providers from these shores.

The same Government is enforcing drastic cuts in margins for financial services companies. Surely, the best way to achieve these cuts without bankrupting the industry is to make maximum use of new technology?

While being entirely sympathetic to the fact that the FSA has had rather a lot on its plate in the past 18 months, this has not been an acceptable reason for IFAs not completing pension review cases.

Is it acceptable for the regulator to act as if it has been too busy to deal with e-commerce? The FSA clearly needs some help in tackling what is a very complex subject. Perhaps, as an industry, we should look at trying to find a way to deliver this help.

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