In 1992, the word “Internet” didn’t even rate a mention in most dictionaries. In 2000, over 25 per cent of Australians are online and the percentage is rapidly growing.
The Internet represents a treasure chest of information and increasingly being used to conduct transactions online.
There are also early signs that electronically delivered financial advice is emerging on a range of products, services and issues. Risk profile services and product recommendations are now available. It is not hard to imagine that the range of online investment advice services will expand rapidly in the next few years.
The number of electronic wraps is also likely to increase rapidly, with retail and wholesale investments offered online providing a wide range of reports.
So while there is no doubt that online information, communication, transactions and advice will experience dramatic growth, how much of a threat is this to advisers?
For some advisers who are transaction-focussed, these developments will indeed pose a threat. However, professional advisers prepared to rise to the online challenge will also thrive.
After all, newspapers have not been rendered obsolete by radio, TV or the Internet. However, they have had to respond to these technologies and change their role. While people can see instant 24 hour news, they can still turn to the print media for in-depth coverage and analysis. The print and TV media have also broadened their horizons, providing more and more lifestyle information on topics such as personal finance, entertainment, real estate and health. New publications have been created to cater for emerging niche markets.
Likewise, to continue to grow and prosper, financial advisers will need to adapt their role and processes for the new environment. There are at least seven major areas in which the growth of the Internet will impact personal investment and financial planning:
The Internet is quickly becoming the major source of general and specific financial information, particularly for accumulators.
The use of the Internet for online investment transactions will continue to grow rapidly, with people able to transact in retail and wholesale managed investments, analyse their portfolios and access a wide range of investment information. These services will be available with no entry or exit fees and through the use of wholesale funds, the ongoing management fees for the client’s total portfolio could, in some cases, be lower than retail funds. The cost of transactions and information will continue to fall.
The average investor in 2010 will know a lot more about investing than they do today. The Internet and media are ensuring that investors have greater access to information that is easy to understand.
The provision of commoditised online advice is likely to grow rapidly but, for this channel to become a major player, investors will have to develop a lot more trust in electronic advice.
The Internet is enabling financial advisers to move their businesses online, allowing them to become more efficient and build stronger relationships with clients through the provision of web services and email communications.
The Internet offers investors and advisers more self-service options. Along with interactive voice response, the Internet enables clients and advisers to access statements, account balances and switch investments.
Rather than posing a threat, these developments present a golden opportunity for professional financial advisers who are prepared to respond to change and continually invest in their own education. These advisers will be able to use the Internet to build a stronger, more value-added businesses.
While the Internet may result in investors being more technologically and financially savvy, there is little doubt that most people will still need guidance to help them through the avalanche of change, choices and information overload.
Simplification of our national superannuation system is currently on the agenda – but can we really imagine that financial markets, investment products and services, and legislation becoming more simple in the future?
The bottom line is that many people will still seek the reassurance, support and guidance that only a personal adviser can provide. They will still need a comprehensive plan which addresses their own personal goals, preferences and circumstances.
While there will be reduced need for the adviser of the future to be involved in every commodity transaction or client enquiry, they will be able to direct their energies to providing real value-added professional advice and personal contact with their clients.
Research in the US suggests that many investors who buy directly from a fund manager swing back to using an adviser as their portfolio grows. The reason is simple. The investor is keen to protect the wealth they have accumulated; their portfolio often becomes more complex with size; and their personal circumstances often become more complex as their life progresses (eg divorce, family issues, estate planning).
The message is clear – the Internet will broaden the market for accumulators who enter by buying direct but these people represent a great opportunity for advisers as their wealth grows and circumstances change.
So, in summary, there are eight good reasons why advisers should embrace the internet.
Improve their administration efficiency and reduce costs.
Use the internet as an effective lead generation tool.
Use the net to build deeper and richer client data and market more effectively.
Provide clients with self-service options, and automated communications.
Service clients in remote locations more effectively and efficiently.
Use the net to inform and educate clients
Communicate more effectively to clients and staff
Build your own professional capability, skills and knowledge <I>
Ross Bowden is the general manager of funds management at Mercantile Mutual.
