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Spend & Save

Pros and cons of phone-alone

The range and choice of financial services available over the wires continues to grow, but Steve Lodge warns there can be drawbacks
PAY a forgotten bill that has been hanging around at 2 o'clock in the morning? Arrange a mortgage in minutes, having seen a property after work? Buy a personal equity plan or some shares after a Sunday lunch tip-off?

All and more are available to phone-friendly people. This week's announcement by the Prudential, the UK's largest life insurer, that it plans to set up a telephone bank next year to offer savings accounts and mortgages is just the latest among a growing line of financial organisations queuing up at the convenience of their customers.

For consumers, the main attraction of these telephone services is the ability to sort out things financial instantly without having to visit branches or meet sales people - and outside traditional business hours, too.

First Direct, which started up telephone banking, says it was inspired by customers' deep-rooted frustrations with branch-based banking - the all-too familiar queuing, for one.

Cost is the other much-cited attraction. The "direct" nature of these operations - the lack of branches or middle men - means the companies have been able to pass on significant cost savings on many products and services.

Our table shows the four best-known examples of telephone services across the financial spectrum. Direct Line was the real pioneer. It launched 10 years ago and can fairly claim to have transformed the buying of motor insurance. With more than 2 million policyholders, it is now the biggest motor insurer in the UK. Direct Line says callers can be insured within minutes. It admits that some brokers will now say they will beat whatever price Direct Line quotes, but it says this is "silly pricing" that will not last long.

First Direct claims the most comprehensive telephone banking service available - account holders can check balances, pay bills, transfer money and order chequebooks at any time, day or night; mortgages, investments and pensions can be arranged over the phone, too. Account holders can also freely use the Midland branch network for paying in money. Any cashpoint machine available to Midland customers (which includes those of the NatWest) can be used for getting cash.

Chief executive Kevin Newman says the aim is to be among the best in price. But he admits that on current accounts, for example, "there is less need to be competitive". And its investment products have never stood out as offering particularly good value. At present, the bank is tempting people to open an account with a gift of pounds 15 cash.

Richard Branson's Virgin Direct, launched earlier this year, is the new investment kid on the block. It currently offers two tax-free PEPs - one that invests in shares, the other offering a higher income from bonds - both of which it says are the cheapest around. You ring in, they send you some bumpf and will call you back a week later.

ShareLink is the largest no-advice stockbroker in the UK. While shares can only be bought and sold when the stock market is actually open, ShareLink's longer opening hours mean that orders can be placed even at weekends. Initially, ShareLink was known for price. But with a minimum commission of pounds 10 and a maximum of pounds 50, the company now readily admits it is not the cheapest. However, it emphasises its range of services to DIY investors. In 1996, it plans to open the first of a network of investment centres to offer visitors information on companies and their shares and dealing services for home computers.

Competitive pricing from these innovators has led others to cut prices, set up copycat operations and improve services. However, there also has been a growth in what John Wriglesworth of the Bradford & Bingley building society calls "fake phone-alone services", where customers get convenience but not cheaper prices. He contrasts his own society's Mortgages Direct service, which offers cheaper mortgages than through B&B branches, with those of some other lenders, where the deals are no better. Do not assume telephone operators - however strongly branded - will automatically offer the best deal.

Other limitations and potential shortcomings to watch out for with such services include:

q Lack of advice. Virgin, for example, has made great play about not paying commission to financial advisers. Fine, but equally it does not give advice as to the suitability of a PEP as an investment. The concern is that these and more complicated investment products - particularly pensions - which are even more important to your financial well-being, might be bought without an investor knowing what he is doing.

q Time and cost. Most companies do their utmost to reduce telephone time, but typically you will still pay for at least a local-rate call. Some complex financial transactions can take perhaps half an hour.

q Access. Direct Line claims callers will get through in seconds. But remembering passwords in the wee hours to make a banking transaction can be difficult.

q Security. Recently a user of the Co-operative Bank's Armchair Account telephone service proved that someone might be able to get past security checks and access an account even without full knowledge of the account holder's "passwords".


Company Number Opening Current Future

of users hours services

Direct Line 2.5 million 8-8 Motor insurance, Savings account

(9-5 Sat) mortgages, personal (later this year),

loans, home and investments

contents insurance,

life insurance

First Direct 500,000 24 hours Full range of banking Corporate bond

7 days and financial services PEP, other


Virgin Direct 20,000 8-10 PEPs and unit trusts Pensions and

7 days life insurance

ShareLink 600,000 8-8.30 Buying and selling Adding 'branch'

(9-2 Sat) shares, PEPs network - an

(11-4 Sun) investment

centre in London

selling PC-based

dealing services

(open early '96