Let your fingers do the talking

Why queue when you can do it all online? Nic Cicutti and Tony Lyons open a four-page examination of the revolution in financial services

The past 12 years have seen a revolution in the way we buy financial products. Before, we had to purchase insurance, investments, pensions, stocks and shares through various professional advisers. Many either charged high fees or else were paid large commissions by the insurance companies and other financial service providers.

Direct Line changed all this in 1985 when it began selling motor insurance directly over the phone to the public. The insurance cover was as good as that offered by the traditional companies and much cheaper.

Since then, other companies have widened the range of services available. First Direct, an arm of Midland Bank, was the first to offer 24-hour banking by telephone but has now been joined by other banks. Many mortgage lenders now offer instant home loans over the phone.

Because direct selling operations have much lower overheads and do not pay anything to middlemen, purchasers have found that they are buying at a much cheaper, value-for-money price.

By shopping around, prices can be compared. All it takes is a bit of patience. Today, there is hardly an area of investment and finance that cannot be bought directly, without the need to meet an adviser or broker.

Take personal pensions - a service that is becoming increasingly popular over the phone.

The advantage is that, unlike with most other providers who are forced to pay hefty commissions and service expensive sales networks, buying a pension over the telephone has a hugely positive effect on the value of your retirement pot.

In the past few months a number of providers have entered the fray, offering pensions with low, and even non-existent, set-up charges and extremely keen annual fund management costs. Earlier this year, Eagle Star launched its phone-based personal pension. Assuming a 9 per cent growth rate on contributions of pounds 50 a month in the first year, a pension with the company would be worth pounds 629 after 12 months. After two years and the same growth rate, the same level of contributions would be worth pounds 1,310.

By comparison, investors who put their money with many traditional companies would be lucky to break even after five, or perhaps even 10 years. The danger of such heavy charges is that the early investment period is where the funds have the most time to earn interest. If you suck away most of the money in fees, investors are denied the chance for their money to grow.

Significantly, many other competitors can deliver similarly low charges to Eagle Star, including Virgin Direct, Equitable Life, Merchant Investors, PensionStore, Legal & General, Marks & Spencer, Scottish Widows and Flemings.

The importance of these companies is that many sell their personal pensions exclusively over the phone. Others offer the choice of person-to-person advice or the telephone, whichever is most convenient to customers

Telephone-inspired competition is also forcing providers who intend to deal exclusively face-to-face to match those charges.

Last week, Woolwich - the newly-floated former building society - launched its own Pension Account, which it claims is also one of the cheapest.

With its pounds 1.25 monthly fee for lump sum payments, no initial charges, penalty-free payment holidays and no stop or restart penalties among the options on offer, Woolwich's Pension Account certainly delivers excellent value. It is one of a new breed of easy-to-understand products which will help sound the death knell for opaque, expensive products on offer from its rivals.

But would all of this have been possible without the pensions revolution? Almost certainly not