Search engines offer advisers comprehensive information on a range of products - but at a price that forces some to look elsewhere for product data, writes Johanna Gornitzki
Portals are often the first reference point for advisers researching products. However, as they only provide quotes, IFAs wishing to find out more have to look elsewhere.
There are numerous ways in which products can be examined - providers' websites, financial press and in-house updates are some examples to name a few. That said, search engines specifically tailored to suit intermediaries' needs tend to be the favoured option.
For protection advisers, the main ones are Aequos, provided by Defaqto, and Synaptic Systems. While Aequos is the most comprehensive search engine - covering more than 20,000 whole of market products compared with Synaptic's 10,000 - little differentiates the two.
Both launched nearly 12 years ago (shortly after the development of the first portal) and both provide similar services, covering the main products including critical illness, income protection and private medical insurance - all on the group and individual side. How user-friendly they are seems the only difference.
Taking a closer look at the tools, Aequos works on a system that filters down products so it enables the system to identify those that meet each client's requirements. It does so by applying a product data numerical analysis (DNA) scoring system, which enables users to grade products based on quality features.
"The 'product DNA' benchmarking system looks at a selection of different product covers, features and benefits which are then used to compare policies against each other.
"Each product feature is scored on a one to five basis, with a score of five meaning a particularproduct hasa cover/feature/benefitthat puts it into the highest categoryin the market while a onescore meansthat particular product falls into the lowest category," explains Chris Johnston, marketing manager at Defaqto.
"Totalling the individual DNA scores across the features chosen gives a total DNA score which can be used to show how 'good' or 'bad' a product is, from the consumer perspective for those particular criteria," he adds.
Synaptic, meanwhile, uses a software tool, Synaptic Manager, that includes product search and selection tools, which allows advisers to tailor products to suit their clients.
It also provides a system covering all aspects of administration management as well as a system designed to help IFAs who wish to build their own website.
Both search engines are updated on a regular basis, and most providers have a technical team who liaise with the search engines and make sure they hold the correct information. "This used to be a time-consuming job as until recently the databases were updated by CD. Now that they are fully online it is easier and quicker to update them," says Andy Milburn, IFA market manager at Royal Liver.
Neither of the research tools compare prices, but they both have links to the main portals in the market. In many ways, portals and search engines work on the same basis. They both compare different products, although the former focus on price while the latter focus on product features.
Their pricing structures are, however, completely different. And this is one of the downsides with search engines because, while portals charge IFAs a nominal fee and can sometimes even be free of charge, brokers wishing to use a search engine usually end up having to pay a hefty monthly fee.
According to Defaqto, cost can vary by the number of product tables intermediaries are registered to use and other commercial considerations. As an estimate, however, an IFA should expect to pay around £50 a month for using a search engine. This is almost five times more than advisers would have to pay for using a portal.
"A lot of one-man or two-man band IFAs do not use search engines and that is mostly down to cost. It is not cheap using the research tools and few IFAs feel they can justify the cost," reveals Peter Chadborn, principal of CBK.
The fact that many advisers are shunning search engines means bad news not just for search engines' financial strength but also for the industry as a whole as it means that the emphasis when giving advice will be on price rather than the quality of the product.
Of course, there are other ways intermediaries can investigate products. For instance, in addition to search engines there are a number of financial magazines that have online databases - but their online information is nowhere near as detailed. Another alternative is to look at every provider's website. However, Chadborn does not think that is an option.
"Extranets can't compete with search engines because they are too time-consuming. They also have a whole raft of marketing material which you have to rummage through to find factual information," he says.
For larger IFA firms this is not a problem since most of them have their own in-house research team who assess different providers and their product offerings. Jason King, managing director of Life Policies Direct, belongs to one of the larger firms. "We do our research in-house and we have fact sheets that we do ourselves. While the search engines are nice and easy solutions, they do not provide enough details and all the nitty gritty about products that is so important."
Therefore, the problem here is mainly for smaller intermediary firms who do not have a choice but to conduct their own research. However, time is also an issue for some small advisers and more and more of them end up having to rely on the information provided by a network.
As Milburn suggests: "Smaller firms down to one-man bands just don't have the time to do this sort of in-depth research themselves so they usually rely on a network panel person/team to do it for them."
Whole of market adviser Chadborn finds this trend worrying.
He said: "I spoke to a member of staff working for the research department of M&E network, which has 1,200 members, about what research they undertake for the different types of protection products.
"While agreeing that critical illness and income protection are two products that clearly need to be closer examined, he said that for term assurance it is 'obviously only down to cost'.
However, this is not true, because it does make a difference. Still, the network almost encourages intermediaries to advise on price only."
This has caused a rift in the market. On one hand, larger IFA firms have reliable research sources readily available, and on the other, smaller IFA firms have to choose between digging deep if they wish to pay for using search engine facilities, or basing their advice on price. Unfortunately, this has led to many smaller IFAs to overlook anything else except price and their personal view of a certain insurer.
Chadborn says: "The average IFA is in his 50s and they tend to go for their memory, which tells them 'I know this is a good product'. However, that is not always true since when it comes to protection products, you have to rely on up-to-date information."
What kind of service are IFAs trying to give to their clients? Is it advice based on price comparisons only or is it based on a client's specific needs. The latter is what most people think equals independent advice. However, the cost of using search engine facilities has stopped many advisers from dwelling on product features.
If this trend continues, it may soon forever tarnish the value of independent advice, which is about recommending quality products.
With supermarkets and brands such as Virgin Money aiming to grab more of the market share, the price of not undertaking any research could soon become much bigger than the monthly fee intermediaries would have to pay to use a search engine.
Adding to that, the potential bill from the Ombudsman if an adviser recommends anything other than the most suitable product could also inflate the cost.
However, by undertaking thorough research, showing customers the true value of advice, this can easily be avoided.
