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Will it be war with robot IFAs?

Last month, two of Britain&#39s biggest insurers, Commercial Union and General Accident, announced plans to merge. Wonderment at the size of the merged companies was tinged with concern over how many jobs would be lost due to economies of scale.

Frankly, it was a little hard to take seriously the suggestion, made in the name of these companies, that no more than a couple of thousand out of a six-figure combined workforce were likely to be made redundant.

The overmanning so typical of Britain&#39s uncompetitive manufacturing industries in the 1960s and 1970s afflicts Britain&#39s much-vaunted financial services sector as well. It is for the same basic reason – technology.

Computer networks and clever software are going to be capable before long of doing much of the work the banking, insurance and investment world has for years recognised as the exclusive province of a human workforce.

Of course, computers have been used in the industry for the better part of two decades already. This is particularly so at the wholesale end. More recently, online support has been available to providers of retail services. For much of this time, computers have been there to facilitate the salesforce, rather than supplant it.

But we are entering a period where it is inevitable that this perception is bound to change. The main reason is cost. Humans are expensive – to employ, to train, to house, to insure and generally to entertain. Developing software for a computer to do the work of a human is a complex and very expensive process. But once that development cost has been absorbed, the operational cost is much lower than the cost of employing the human salesforce.

The precedent for a move in this direction has been set by the appearance of a handful of internet banks and online share-dealing services. True, little or no transactional advice is offered to the investor by such services. But it is surely only a matter of time before websites start to appear where the investor provides an information profile which the software will process and use to make investment recommendations.

However, I would argue that the "electronic IFA" will offer a clear advantage over the human IFA in the area of quality of advice.

The human IFA, obliged to provide best advice to clients, may compare a few alternative products offering the customer what he requires, emphasising one or two with extra collateral benefits. He is incapable of mastering relevant details in respect of tens, never mind hundreds or thousands of alternatives before making a recommendation.

Of course, there is a question as to how the quality of an electronic IFAs should itself be monitored. Regulators who have had their eye on compliance by investment firms with rules and guidance may have to switch their focus to companies developing and exploiting electronic IFA software.

In the circumstances, one might ask if the human IFA in such a market will any longer be considered capable of providing best advice to his clients? Indeed, will there be roles in the long term for salesmen and service providers as we know them?

The answer to this last question is a qualified "yes". The industry will need to steel itself for a fairly substantial reduction in its present numbers although the same goes for employment in a number of walks of life. While customers will always need banking, insurance and investment services, these do not have to be provided by conventional banks, insurance brokers and the like.

Already, retail chains such as Sainsbury&#39s and Marks & Spencer are building up market share in different parts of the financial services marketplace. Perhaps these can continue to offer in-store services because their core business involves physical sales but this cannot be taken for granted.

The IFA operating from a static office is similarly not likely to survive in the long term. If he can offer an electronically driven service and convince enough people to visit him to see it demonstrated, he may survive for a bit.

Nimbler by far will be the IFA who can take that demonstration on a portable PC into homes and offices to demonstrate the diversity of electronically marketed products to customers adverse to researching these for themselves.

There may be scope also for the highly trained Q&A team behind a wholly electronic IFA so that if the investor tries to find suitable products at a website but reaches no serious conclusion, he can interact with humans behind the scenes, via email or a phone link. The Q&A team will have to be experienced investment sales staff, qualified to give advice.

But the role of the IFA is destined for significant change, as we enter a marketplace where fewer will be required than today and those left in play will have to be far more highly skilled and computer-literate than at present.

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