Collaborate to cut costs
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At no time in history has it been more important to remove costs from all parts of our industry. Today we stand on the brink of a new age: the economic models that have worked for the last 50 years are now obsolete. Generations of consumers have been betrayed by politicians, both left and right, yet it is the personal finance industry advisers and providers that the consumers hold responsible for the value of their savings.
In an era of declining investment returns there are hundreds of millions of pounds that can be saved if we can only start trading with each other more effectively. In the last six months an unprecedented number of adviser and provider firms have been working together, to make such savings a reality through the medium of Adviser Forum.
The sins of many politicians past and present are coming home to haunt us all at once. The only thing you can rely on about government is that it will let you down. While in my view Gordon Brown is without doubt the most inept and incompetent Chancellor of the Exchequer ever to hold the post, as evidenced by the decline in the value of UK pension provision under his stewardship, we have to recognise that the Tories capped the ability of final-salary schemes to accumulate reserves, introduced and put a massive advertising campaign behind Personal Pensions and allowed people to contract out of Serps. Governments come and go, each leaving their own mess behind them.
The personal finance industry, on the other hand, remains and has to deliver real results to consumers rather than electoral promises. Independent financial advice is a great idea. The reality is, however, that unless you are careful, the additional costs of spreading a consumer's financial affairs across a multiplicity of providers eat significantly into the savings consumers can achieve. In practice, as recent research carried out by Aifa and 1st Software shows, administrative processes and compliance obligations mean only a tiny fraction of an adviser's day can be spent with clients.
It is time to give a Fair Deal to IFAs in the quality of service they receive but it is also time to make sure that advisers minimise the costs they cause providers to incur as a result of the responsibilities as a financial adviser. Over the last 10 to 15 years a tremendous amount of effort has been put in, trying to launch electronic services to make our industry more efficient. Yet the way that most advisers submit business to insurers, request information on current clients' holdings and receive commission statements are in reality very much the same as they were a decade ago.
So what have we been doing wrong? Providers and advisers all want to trade more efficiently but why have we not been able to achieve this?
While in a consumer-facing environment different advice firms are competing head to head, the raw material products with which they are working are basically the same. So, at an operations level, all advice firms face the same issues with their suppliers and, at the same time, all product providers, life companies, fund managers and mortgage lenders face the same issues with their distributors.
There really has been no lack of effort and energy expended in the cause of delivering electronic services to advisers and their clients, yet why are we all still continuing to use old, expensive processes? Fundamentally, I believe that in the past we have not spent enough time talking to each other as an industry and really getting to grips with each other's problems. I am, however, delighted to say that this is beginning to change.
It is all too easy to sit on the sidelines and criticise, but if you really want to make things change you have to get engaged. This is why, earlier this year, working with a number of motivated industry leaders such as Alan Keegan from Barclays, Mike Achilles from Inter-Alliance and Les Sharpe from Sifa, I helped to put together Adviser Forum.
For anyone who has not yet come across the group, it involves the majority of the major adviser and product provider businesses working together on common business issues in order to drive down costs and give a better service to consumers. Forum focuses on the areas where it is possible to drive out the common enemy of cost and work together more efficiently.
With so many of the major organisations working together to agree collective agendas that create operational improvements in the market, the forum has already been able to document a wealth of valuable information on how much needed economies can be achieved. One example is the recently published analysis of adviser requirements for automated commission from 10 of the major IFA firms. I am told that having the needs of so many adviser firms aggregated into a single document is making it significantly easier for the providers participating in the scheme to justify the allocation of resources to meet these needs.
Technology is, of course, the key to many such savings and the Forum has groups representing IFAs, life offices and fund supermarkets working together to understand what the barriers are to us moving to the long promised, but as yet elusive, world where technology takes the strain. The first areas being addressed are automating the commission process. A business justification study carried out by my own organisation has identified that millions of pounds can be saved by IFAs using more automated commission processes.
I believe the activity within Adviser Forum will enable everyone from the smallest adviser to the largest provider to benefit. This is why I personally have devoted a great deal of time with many industry colleagues to make it happen. To those who have yet to join, my message is call me, I will tell you how you can come on board.
Collectively there is now a majority of major firms in this industry working together to drive change. Doing so will not be easy, but it is a challenge that those of us involved in the process choose to accept and are no longer prepared to postpone. The fight against costs is a battle we must win.
