Few offshore banks and life offices are taking advantage of the massive potential of the internet for client and IFA servicing, leaving the territory free for third parties to explore
Distracted by all the comment about disintermediation and technology? Damaged by the failure of financial product styles to meet client expectations? Fazed by increasingly complex regulatory involvement? Pre-occupied with risk and return issues for new breeds of investments? Does any of this sound familiar?
In this context, anyone would be forgiven for saying the IFA market is under stress. To suggest, however, this spells the end of offshore IFA activity would be missing the point completely.
The IFA market is very resilient and the pressures that are giving rise to the stress will only result in fitter, more demanding IFA management teams over time. The stress is all about the speed with which the current management teams of both IFAs and their suppliers can respond, and for speed, read rate of acquisition and exploitation of technology designed to play to the pressures that are pointing the way.
The dotcom boom was fuelled by the perceived wisdom that customers wanted to forsake intermediaries of all shapes and sizes. 'Put up a website and they will come' seemed to be the strategy of many businesses from financial services to food delivery. How foolish this seems now.
Of course, in many ways, the offshore financial services industry is an ideal market for exploiting the internet: financial products themselves are virtual; the customers are spread in different time zones; and there is a massive appetite for more detailed information on investment performance and strategies, individual assets, fund manager commentary and so on.
This does not mean the market is right for going direct - in fact quite the opposite - the IFA is structurally embedded in the process of offshore financial services provision. Clients requiring an offshore financial services solution are likely to have special, if not unique, circumstances with regard to factors that include jurisdiction, tax position, residency intentions, job security, property and dependants. No bank, fund house or life office can trust in blind faith that a particular product will remain appropriate without the benefit of a review from an IFA, who has a real understanding of such circumstances.
So how have offshore institutions reacted to the opportunities available through the internet?
Access all areas
The major clearing banks have responded by providing internet access to their standard range of offshore accounts. Such developments appear to be variants of their parent's core internet banking systems. This may be good simply for access, but there is nothing groundbreaking about the market approach.
Bank of Ireland sought to break the mould with F-Sharp. This internet and phone bank provided an impressive array of facilities including sophisticated currency management tools. Unfortunately, F-Sharp's online services were withdrawn on 31 August, the company website citing the principal reason for closure being an inability 'to attract sufficient numbers of customers to support the considerable costs of maintaining and developing [a] multi-currency online platform.'
This illustrates exactly the point about the complexity of the financial affairs of offshore clients and the need for IFAs. F-Sharp offered a sophisticated, yet standard, service for clients whose requirements were less standard than the bank might have expected. Not only that, but the effort required to open an internet account when you are based half way around the world may have just proved too much for some. Perhaps if IFAs had been allowed to tailor the excellent F-Sharp facilities with their own propositions the results may have been more acceptable.
This view was echoed by the manager of one large European IFA network. While he had not dealt with F-Sharp, he felt the internet services offered by the larger offshore banks were poor cousins: "As soon as a client wants something that is not standard, the banks just do not want to know."
This is perhaps more about the core banking proposition than the internet services offered. However, the promise of services customised for clients to an ever-more-intimate extent looks unlikely to be realised in the short term.
How have the life offices reacted to the availability of internet services? Probably the best answer to this is patchily, ranging from those life offices that provide a range of services to those providing hardly any.
Zurich Financial Services (ZFS) falls into the first category. Peter Taylor, e-program manager at ZFS, says the company is testing its latest extranet release at the moment, due to launch later this autumn. The new release will provide policy enquiry functionality, both on an individual or grouped basis, premium histories and data downloads.
"We have over 2,000 registered users" he says, "some who are addicts and use the system three or four times a day, and some who use it just once a week."
Friends Provident International has an impressive demonstration site, allowing IFAs to track new business, view commission information and conduct many routine servicing enquires. Unfortunately, this system is available only for clients of its Guernsey operation, as FPI moves the ex-RSAIFS clients onto the FPI systems platform. Features such as new business tracking will start to be available within the next 12 months for the Isle of Man policies once the systems begin to become integrated.
"Details of about 50% of FPI's clients can be accessed through the internet system," says Sian Warren of FPI's international marketing division, responsible for the extranet service to IFAs, "although we provide a CD-based service with email updates that allows IFAs with RSAIFS clients to have up-to-date valuations and other details at their fingertips. The addition of the internet service is really about channel choice: IFAs can contact us by telephone, letter or fax, and now though the internet."
FPI also offers an e-bond facility, allowing IFAs to submit single premium bond applications online, although Warren admits the success of this initiative has been slower than its UK experience, where around 70% of bonds are written online.
There does appear to be a big debate about what IFAs want from life office providers. David Swayne, IS director at Clerical Medical International, (CMI) refers to research conducted among CMI IFAs to address this issue. "Our sales people were convinced IFAs wanted to submit applications online. However, when we did some research, the conclusion was IFAs' priority was for information to be available, and they were less concerned about the transactional side," he says.
Swayne benefits from the associated developments elsewhere in the Clerical Medical group. "CME, our European sister company, has developed online new business facilities that work well culturally for its market." This outlines a further point about the difficulty of developing internet facilities that make a commercial difference internationally: namely that one approach will not necessarily be embraced by the many different cultures that make up the offshore market.
Scottish Life International appears to be one of the first offshore life offices to permit online transactions. Its demonstration extranet allows suitably authorised IFAs to enter and manage switch transactions, as well as viewing a range of the usual policy-servicing facilities.
Other life offices contacted said they had considered the provision of client access, but had determined this fell beyond their immediate strategic requirements. This leaves it to IFAs to create, populate and maintain their own websites, or to seek alternative ways of providing this additional service to their clients.
Hansard's experience has been that client sites have been one of the most successful applications it has offered. This may, in part, be due to the approach taken: the client sites are branded by the IFA, with the life office providing the data updates, the security, the resilience and the disaster recovery facilities. Furthermore, every time a client visits the site, details of the activity are passed to the IFA, allowing a suitable service call to be made within hours. In just over a year, more than 25% of clients have registered for this service through their IFAs.
There are alternatives for IFAs. NAV Global provides an outsourcing facility which loads up client details from several sources and aggregates them. The result should be that clients have an aggregate view of their portfolios through a single portal.
Through client sites, some IFAs appear to have found a differentiator which not only maximises the service they provide (by ensuring relevant contract information is available continually on the internet), but reduces their own costs and hassle. Clients can establish the facts about their holdings themselves, and contact their IFA to discuss matters of interest or concern.
There might be side benefits. Given the peripatetic nature of offshore clients, maintaining contact through a client site allows IFAs to maintain contact wherever they are in the world.
Programmers talk about the search for the 'killer app,' the single application that hits the market and has such a profound impact the business is changed forever. So far, in both the banking and the life office businesses, we have yet to see a killer app.
So what would a killer app look like? First, it would probably not be a straight replacement or new approach to existing process (or we would have seen a bigger impact with some of the facilities that are now available). So we are looking for something new, be it a product or a service. Second, it will have the IFA at its heart - we have seen what happens to direct-type business models in the offshore financial services market. Third, it will be so easy to use it will seamlessly and rapidly be absorbed into the sales and servicing processes, so that people cannot remember what they did before.
Will we see a killer app in the offshore market? It is hard to know - but it will only be by listening to independent financial advisers' (IFA) reactions and working with them that we'll get close.
To return to the opening theme there has probably never been a better opportunity for offshore intermediaries to expand their franchises.
The last word belongs to the IFA. "Sales people are not particularly demanding when it comes to systems. They want systems that assist them in delivering the standard of satisfaction that their clients increasingly demand."
The major clearing banks are providing internet access to their standard range of offshore accounts, but there is no opportunity for customisation.
Client sites can provide clients with an aggregate view of their portfolios, and can help IFAs with client communication and servicing.
No preferred charging model
To 1,552 families and businesses
HL and Liberty SIPP slowest
Lifetime and annual allowances