The distributors are coming and they are going to do to the product providers what the supermarkets have done to the farmers. Distribution is king and the life offices can be taken out of the loop by intermediaries offering product wrappers.
This is the mantra of those propounding the new business model for the intermediary but are rumours of the demise of the life offices being greatly exaggerated?
Each month, the ability to aggregate financial information and data on to a single screen moves forward. As this becomes a reality a battle is being fought between wrap accounts, wealth managers, fund supermarkets, IFAs and portals are fighting for a cut of the market.
Even the personal finance websites of the Daily Mail and the Daily Telegraph are targeting the mass market with a deal to white-label Moneysupermarket.com's comparative account aggregation system, with leads going to IFAs.
This second technological revolution comes in part from a demystification of what a product actually is – a back-office system and regulatory authorisation to operate a tax-efficient wrapper.
Abacus director David Ferguson is teaming up with Skandia Life UK founder Paul Bradshaw and ex-Perpetual executive Mary-Anne MacIntyre to offer advice and tax wrappers across the saving spectrum in a business that could challenge life offices.
Ferguson says: “We have already seen the traditional providers taken out of the equation in the pension market with the growth of Sipps. There is no reason why the same proposition can't mean you do not need a life office for asset management business.”
A new national IFA headed by former RJ Temple marketing director Ian Millward and former Charcol managing director Toby Strauss is also aiming to move into this new sector. The business plans to target high-net-worth individuals with its own range of Sipps, SSASs, Isas, Peps and offshore bond wrappers.
The firm is aiming to have 30 advisers by Christmas and will do its own admin, offer the tax wrappers traditionally offered by product providers and give ongoing advice.
Millward says: “The life offices will come under increasing pressure to prove where they add value. They are OK for protection products but, in terms of running money or offering wrappers, they will be tightly squeezed. This is a shift that is happening anyway.”
He believes technology will be the key to boosting an IFA's service. He says: “The beauty is that if a fund manager changes it is easy to change the portfolio. Portfolios can more easily be updated to match the risk profile of the client and we will be able to give the valuations to the client that IFAs have always been promising but often do not deliver. We think this is the way that the majority of IFAs will be working in five years time.”
But Scottish Life group head of communications Alasdair Buchanan believes life offices will always be a viable proposition because of the cost savings they bring through economies of scale.
He says: “The question is does the public want to exercise all this choice and move money around themselves or do they want to get someone else to do it? Can a small firm get the same deal on funds as a life office? For most people, it is more convenient to go to Marks & Spencer and buy a suit off the hanger rather than pay a bespoke tailor or even make it themselves.”
But Ferguson argues that the life offices will retain business across middle and lower income groups but will gradually lose out in the lucrative mass affluent market.
He says: “I would accept that the wrap approach is most likely to succeed in the mass affluent target area but this still means the life offices face a serious threat. This is the high market business that life offices thrive on and they will feel the pain if they are not getting this business.”
Norwich Union Rob Fletcher says: “Some of these propositions are a bit flaky. Are these new businesses trying to be the cheapest or are they trying to give a value-added proposition through the quality of their advice? It is those companies that are clear about their proposition that do the best in the long run.”
Fletcher says: “I would not say that we are quaking in our boots because some technology-based business is going to put us out of existence.”
But NU clearly does not want to be left behind and in June it was the first life office to put cash into the development of a wrap project – Lifetime – a company that is working closely with the Millfield group, which is also an investor. Millfield hopes it will be used by 2,000 advisers within three years, targeting the mass affluent market.
Fletcher says it is unfair to compare wrap with the dot.com businesses. He says: “Dot.com was directed at the consumer and did not work because it is only people with pointy heads who are on the internet at the weekend to look at funds. Wrap is where someone will push the buttons for you. The majority of people need some disturbance to actually do anything and that is where wrap can add value.”