Is An Online Execution Only Service The Big Opportunity Nick Bamford
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Is An Online Execution Only Service The Big Opportunity Nick Bamford
- 1. Is an online execution-only service the big opportunity IFAs have been waiting for? Nick Bamford APFS AIFP Chartered Financial Planner Chief Executive Informed Choice
- 13. The result Informed Choice
Hinweis der Redaktion
- Ladies and gentlemen, good afternoon. Phil thank you for inviting me to speak today. Had you asked any of my team what they thought about me speaking at a conference titled Social Media in Financial Services, I’m sure they would have looked a little puzzled and asked whether you had the right Bamford speaking! After all, it is my son Martin (managing director at Informed Choice) who is responsible for both of the websites we run at the company. And indeed it is Martin who drives all of our activity in respect of the use of social media. However, I may be living proof that you don’t have to have the first clue about how the Internet or indeed social media works to understand how important it is as a business tool. First though, can I just make a slight but important change to the title of my session? Phil created the title on this slide from the article that I wrote for Money Marketing online, subsequently published in the magazine, but it was the Editor who wrote the headline. What I wrote about was an online execution service not an online execution “only” service. There is an important difference as I hope I will make apparent.
- Here is a book worth reading. I am sure you will be able to buy it on the Internet! I have I must confess changed some words, replacing the American word “Period” with “Full Stop”. I am after all an English man! But I agree entirely with Gary’s view. Social Media and its use will be one of the dominant factors for success in the financial intermediary firm of the future. If I can quote Gary further, it would be to repeat his message “Everyone knows the Internet represents one of the biggest cultural shifts since the printing press, but I think society has been slow to recognise that it represents the biggest shift in history in how we do business.”
- So it follows that if we combine our websites and social media, it could result in the biggest business opportunity in history! I honestly believe, as an old bloke who is clueless about how the Internet works, that it is about to come of age and represent a cultural shift in the financial services intermediary sector. Why do I believe that?
- I believe it because change is inevitable. The best kind of change though is the type that you make for yourself and not change that is forced upon you. I have quoted before from an article in the FT by Luke Johnson. The entrepreneur who wrote this piece Ten Easy Ways to Murder a Business. It is number nine on the list that struck me the most. Never evolve, for which read, never change!
- To which I am going to add one I have made up all by myself – number eleven, ignore the power of the Internet and as an intermediary convince yourself that you add value by choosing and implementing the most competitive and appropriate best buy financial product. No, you do not! Very, very soon, selecting and implementing ISAs, pension plans, life assurance, investments and savings plans will become the preserve of the Internet. Intermediaries who depend upon product implementation and being paid only when a product is sold are going to face the stunning conclusion of Darwinian Evolutionary Fact.
- Because ignoring rule 9 (never evolve) and my rule 11 (ignore the power of the Internet) will result in extinction and there is nothing more Darwinian than that!
- I think it is fair to say that combining execution and the Internet scares many IFAs. It doesn’t need to. There are three things I want you to take away from my presentation. Firstly, how you can use the Internet to compliment your existing traditional offline advisory business. As you will see in a few minutes time, our development of this project has not replaced or detracted from what we have done historically. Instead, it enhances what we do, strengthens our brand, gives us access to new markets, generates a new stream of revenue. Secondly, this is inexpensive to establish in monetary terms. It requires an investment of time, both initially and on an ongoing basis. Others will have you believe it requires millions in investment to establish this. It doesn’t. The Internet means a low barrier to entry, particularly if you are already an established authorised and regulated business. Thirdly, the reasons why you need to establish this service. Your clients and the clients you need to be engaging with in the future are demanding this type of service, to either compliment or entirely replace what you currently offer. The clients you work with tomorrow will look and behave very differently to those you work with today.
- The future successful intermediary will use their website to promote their business – what they do and how they do it. The really successful intermediary will use Social Media to promote the very essence of their brand and that is precisely what the client of the future will be buying. Now is the opportunity to create a powerful and compelling intermediary brand by using the Internet. We ask every client or new prospective client if they have visited our website. 100% have done so. They visit it to check us out even if they have been introduced by existing clients, professional connections, advocates or heard about us through the media. 19% of new clients find us by searching the Internet.
- This is the traditional IFA business model; one that still exists within a lot of IFA firms and is being killed off, to some extent, by the regulatory changes we will witness before the end of 2012. There is absolutely nothing wrong with this business model. Where there is the potential for problems is where it is mislabelled as independent financial advice. It is independent financial implementation. There is an element of advice, but the focus and adviser motivation is the implementation of a financial product, because that is how they get paid. To repeat, there is nothing wrong with this, as long as it is properly labelled and understood by the consumer. So, the adviser acquires a client, goes through the ‘know your customer’ process, identifies some problems, solves those problems through the implementation of financial products, and gets paid a commission out of the charges that consumer pays on their product. This traditional business model is not only dying because of regulatory change. Even if the RDR was scrapped tomorrow, which it is not going to be, this business model would still evolve because of a) consumer demand for something more impartial and b) because advisers want to be seen as professional advisers not product floggers.
- So, those who are motivated by a move to adviser professionalism make the transition to become what has been widely labelled as a new model adviser. This is increasingly the IFA of today and will certainly be the IFA of tomorrow. They sell advice not products, ongoing service not sales, and they are remunerated through fees not commission. Those fees can still be deducted from financial products, where it makes sense to do this, but they are not reliant on the sale of a product. These fees are wholly transparent and always agreed with the consumer before services are provided. There are other attributes that make a new model adviser, including the acquisition of professional financial planning qualifications, but in essence it is about service and transparent remuneration rather than product sales and opaque commissions.
- It’s a source of great amusement back at my office that I am here today, talking to you all about the Internet. This is because my personal Internet guru is Homer J. Simpson and his quote “did you know they have the Internet on computers now?” just about summed up my view of the world until a couple of years ago. The Retail Distribution Review is now a non-issue. You have either embraced that change and started (or finished) making the necessary changes to your business model, or you haven’t. Those that are becoming RDR-ready now need to look past the RDR. The worst thing you can do right now is to become RDR-ready and then sit back. If you do that, when you get to 2012 then all of your competitors are going to look just like you… There is a genuine demand out there for impartial and expert information, guidance on what to do with finances and the ability to implement directly with providers, without going through a pushy salesman or pricey adviser. This demand is there today and it is growing rapidly. You need to cater for that demand. I only have to say Hargreaves Lansdown who took £1 billion of pension transfers in 2009 for you to be able to visualise the level of demand. Generation X has a hatred of sales. They are a cynical bunch, always looking for the catch and knowing that there is no such thing as a free lunch. They are more likely to do their research online or ask friends or family than trust a suited and booted financial adviser. And they share what they learn through Social Media.
- Taking advantage of this opportunity to develop an online execution service is not expensive. Some of the big players already in this space will have you believe that it costs tens or even hundreds of millions to get started. They want you to think this because that creates an impossible to cross barrier to entry for most IFAs. In fact, there is a good chance it did cost this much years ago when they got started. It doesn’t today. The Internet has brought the cost of doing things like this crashing down. Our own website, which I will show you in a moment, cost less than £400 to develop and launch. This included the cost of software, design and development. This isn’t because we are cheap skates, but because this is how much it costs to use an open-source content management system (free), engage with a professional web designer (less than £300), host the site on a server (around £100) and learn how to set it all up (free). Where you really need to make the investment is in the creation of content. Content is king. People will find your website because of the content. They will stay because of the content. They will visit again because of the content. Most importantly, they will tell other people (their friends, family, colleagues and complete strangers) about your website because of the content. Another way to keep the cost of development low is by working with strategic partners. When we established our service, there was no way we were going to develop every element of the service by ourselves. Instead, we worked closely with a new SIPP provider who did all of the product development work, and then we white labelled their SIPP for our own use. When it comes to telling the world about your new service, forget about traditional marketing. It is expensive and it is not effective. Use the web to promote your website. Make sure it can be found on Google and the others. Make sure that your visitors can share the content they like with other people. At the bottom of every single page on our website you will find two buttons – one to post the content to any one of over 300 social networks and the other to ‘tweet’ the content to Twitter. Make it easy for your website to be found and make it easy for your visitors to share what they find with others.
- And here is what less than £400 and some hard work will buy you these days. BrilliantWithMoney.co.uk is our online personal finance information, guidance and implementation website. We don’t use the term “execution-only” when describing is to consumers, because those words are meaningless to them. BrilliantWithMoney.co.uk is built on the Wordpress content management system, so it can be managed and updated from any Internet enabled PC. It is fully integrated with the full range of social media and optimised for search engine optimisation. Our website visitors find us through word of mouth, recommendations from their networks, or search engines. In fact, 60% of our visitors come through the search engines. Popular search terms recently include “ISA rules”, “Neptune US Opportunities”, “SIPP Interest Rates”, and “Finance Books to Read”.
- A bit more about BrilliantWithMoney. The site went live in August 2009 and we had over 10,000 page views in the first three months of operation. I mentioned earlier how important content is. Since launch, we have added over 70 articles with more than 50,000 words in total. Content, content, content! All of that content is driving traffic to the website.
- Shortly after the website went live, we launched the BrilliantWithMoney SIPP. As I mentioned earlier, this was development in close cooperation with a new entrant to the UK SIPP market, a firm called Gaudi Ltd. Informed Choice was their first customer and they gave us exclusive rights to white label and market their SIPP. In my 36 years in financial services, I have never experienced a more driven and proactive team than the people at Gaudi. They took over and ran this project for us. Some of you might be a bit confused about my claim in this slide that this is the first online SIPP in the UK. Let me explain. There are plenty of existing SIPP providers who claim to be ‘online’, including a rather large IFA firm based in Bristol. However, our SIPP is (we believe) the first to be completely online with a completely online end to end process. With the others, if you want to transfer in an existing pension fund you will need a paper form. If you want to take retirement benefits, you will need a paper form. The BrilliantWithMoney SIPP is entirely online. Every SIPP provider, particularly those in the online space, claims to be low cost. Where we differ from the competition is the transparency of our low charges. We publish on our website the precise breakdown of charges including who gets paid what. We tell our customers how much is charged by the SIPP provider, the investment platform, the fund manager and we even tell them our margin. Customers in the online world want this level of honesty and transparency. Bundled charges are not good enough. Again, unlike the competition, the SIPP offers access to the full range of investment options, and not simply a fund supermarket with a ‘wide range’ of funds plus some equities. We did this by teaming up with Ascentric, another strategic partner, who offer our SIPP customers unrestricted access to funds, ETFs, investment trusts, equities, bonds and cash. Our interest rates on cash blow the competition away.
- At this stage you might be wondering about the commercial motivation for launching such a website. You will not be surprised to hear that there is a clear commercial motivation! It was very important to us from the start that the site did not contain any advertising or affiliate links. Consumers using the Internet tolerate but do not like advertising. They know about affiliate links and they treat any content containing such links with suspicion, because they understand the commercial motivation. We aim to make money from BrilliantWithMoney in two ways. Firstly, we receive a margin on assets under management with our online SIPP. As I mentioned earlier, this margin is published on the website for all to see as part of the charging structure. Investors using this SIPP know what they are paying for and who they are paying. Secondly, some of the visitors to BrilliantWithMoney who came looking for information and guidance will decide that what they really need is independent financial advice, and they become fee paying clients of Informed Choice. It is a simple and commercially viable revenue model. It might not get a venture capitalist excited in a hurry but it does compliment our existing traditional business, enhance our brand and open up new markets for the future.
- So my session was described by the question “Is an online execution-only service the big opportunity IFAs have been waiting for?” The title I changed by removing the word “only”. I could have chosen to leave it in the title. Our vision of the future is that our clients will go one of two routes. 1 – information, guidance, execution only. 2 – advice, execution. An execution site with or without advice is going to eliminate the need for an intermediary to be involved in the selection and implementation of any financial product. I will be happy to take any questions that you have.