Financial advisers face Web fee drop

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The Independent Online
THE COST of financial products, including life and personal insurance, pensions and packaged investments, will fall dramatically as customers increasingly use the Internet for purchases, say experts.

The key factor driving down prices will be a combination of lower administration costs for Internet purchasers, plus the recognition by providers that Net users who make contact with them are far more serious about buying than those who obtain information over the phone.

The predicted fall in the cost of products comes as both Internet usage and the number of personal finance sites grows almost daily.

These fall into a number of overlapping categories; some are interactive, some not, most belong to a single product provider, some are posted by independent financial advisers (IFAs), and a handful, such as the new MoneyeXtra site, offer on-line quotations from a wide range of products and providers. The rules and regulations covering what can go on these sites are identical to those applied to other advertising media. With the exception of opening an ISA, you cannot buy or sell direct - at some point your signature will be required on a paper contract.

Financial advisers are also reluctant to give advice over the Net. If acting on a "best advice" basis they are required to complete a questionnaire detailing a client's financial position, and prefer to have the client sign it.

What you will find on some of these sites is "free" information. Look out for those which re-package market data bought in from the likes of Standard & Poors Micropal, or Bloomberg. This means you can have access to the same data used by your adviser or broker when taking investment decisions.

Sites such as MoneyeXtra also offer simple definitions of personal insurance products and a calculator that will help you decide just how much cover you need. This clarifies do-it-yourself financial advice, leaving you free to buy on an "execution-only" basis.

"The Net is separating commodity products - those most easily understood by consumers and discounted accordingly, from more complex ones, where some advice may be needed," says Ian McKenna of Financial Technology Research.

Accompanying this there are clear signs that the Net is exerting a downward pressure on initial charges and commissions across a wide range of products.

Part of the reason is that surfers tend to be more serious about buying than those responding to any other form of advertising.

"We reckon to 'convert' an average of 25 per cent of all our Net-sourced enquiries," says Andy Harris, at Maddison Money Management, a firm of independent financial advisers which offers a discount "execution-only" service, along with full commission or fee based advice.

"They come to us having already done research and with a critical attitude to issues including charging. They are ready to separate the cost of a product from that of advice, while we incur lower overheads in finding them."

Product providers such as Prudential are also responding to this challenge. "We have a tripartite approach to the market," says Jeremy Reynolds, a company representative. "That is through Prudential, Scottish Amicable, and Egg. Of these, the first two offer commission to intermediaries, but Egg cut costs to the bone and now accept new customers only through its web site."

Egg has gained 550,000 account holders and deposits worth some pounds 5.5bn since last October, and will shortly offer a discounted range of unit trusts. Prudential's marketing strategy means they should preserve commission- based business, while offering a cheaper, "direct" equivalent. Because Egg is a new, free-standing brand name, independent financial advisers and salespeople cannot argue it "steals" their existing Prudential customers.

Other insurers are likely to follow suit. "The Net will completely change the market over two to three years," says John Hylands, of Standard Life. "Simple products such as car, household and term assurance will lead the way.

"That may drive down costs, but what about professional advice? There is a real danger this will be sidelined. The government also promotes ISAs and stakeholder pensions which do not pay enough commission to reward advisers.

"The problem is that even a very simple product may have to fit into a complex financial planning position, and if the Net only facilitates discounting, advice will become very much harder to find, particularly for the least well off."

Discount brokers specialising in PEPs, equity ISAs and unit trusts appear to be major beneficiaries of a move to Net-based personal finance. Allen Direct, one such broker, offers these products without initial charge, instead collecting "trail" commission payable by providers to intermediaries. Typically, this is between 0.25 and 0.5 of a fund's value.

Managing director Anthony Yagdaroff says: "Is a decision taken directly by an investor any worse than one taken by a broker? I think not, if they use our on-line data and the analytic tools we offer to evaluate fund characteristics.

"The difference is that the cost of our information is far lower than that of going the traditional route."


A platform supported by more than 60 UK life insurers offering free competitive, personalised quotations

Up-dated daily or as data become available, includes all UK unit trusts, OEICs, and investment trusts. Also 106 global equity indexes, currency- adjusted, and 37 currency exchange rates

The "interactive investor" site, carrying varied content on share prices, fund prices, IFAs, mortgages, and fund performance

Supported by Barclays Stockbrokers but with data and advertising on other on-line brokers including Charles Schwab, with further content on mortgages, loans and market tips

Gateway or portal site leading to wide range of related sites on personal finance