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How do you get more advisers better engaged with technology?

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Regulation has been one of the major catalysts for the adoption of technology in our industry. Many of the processes that are mandatory regulatory requirements today would have been impossible 20 years ago.

Each part of the apparently never-ending RDR documentation from Canary Wharf appears to bring with it further obligations which will be entirely impractical for advisers without extensive use of technology.

Consultation paper CP11/8 is no exception. Even a brief review of the extensive level of detail on adviser charging which firms will need to submit to the regulator makes it clear that collating this information manually will be highly time-consuming and would almost inevitably lead to manual errors.
For example, firms will need to report individually on the level of charges received directly from clients and separately from product providers and platform service operators. Given that platforms are increasingly the new shape of financial services provider for the 21st century, it is hard to understand what meaningful benefit the FSA will derive from the split between life companies and platforms.

Where a firm operates on both an independent and restricted basis, the above charges will need to be separated out based on the different advice categories.

There will also be a requirement to identify separately the number of contracts for oneoff advice, again for both independent and restricted engagements. Where the client is paying for an ongoing service, it does not appear that advisers will need to report the split between independent and restricted but they will need to identify the number of clients who were paying for a service at the end of the reporting period as well as the number who have started and stopped paying for an ongoing service within that period.

In addition, advisers will need to identify the maximum and minimum level of charges applied both per hour and as a percentage of the invest-ments, again separated between initial and ongoing charges and split between independent and restricted advice.

In the corporate market, firms will be required to identify fees received directly from employers, consultancy char-ges from providers and again account separately for consultancy charges received via platform service providers.

No separation is required here between independent and restricted advice. However, as with individual business, corporate advisers will need to indicate the number of employer clients receiving ongoing advice at the end of the reporting period as well as the numbers that have commenced and ceased such advice over that period.

Interestingly, there appears to be no provision for reporting situations where the individual has received advice on their corporate pension. Maximum, minimum and typical levels of first year’s projected consultancy charges as a percentage of the total employers and employees contributions also need to be identified.

Additionally, corporate adviser firms are required to notify the types of consultancy charges in typical schemes as percentages of employer contributions, member contributions, fund management charges, flat amounts per member and any other basis used.

While a sole trader might manually record the above information, in practice, for any firm with more than one or two advisers, the amount of time needed to record and report the above manually in addition to all the other regulator reporter requirements will be considerable.

While some advisers might be tempted to write their own programs to collate this data, some firms may be tempted to buy standalone accounting software which could potentially collate such information.

In practice, this is clearly a task best executed by a specialist client management system provider. For most firms, the efforts saved in meeting these obligations alone will probably exceed the cost of licensing the software.

It has long been my belief that the only type of adviser firms that will be able to oper-ate profitably after the RDR will be those that have embedded technology across their entire business.

It is generally accepted that as many as one-third of all adviser firms do not maintain their own dedicated client management software. Of those that do, perhaps half really exploit such systems to their full potential.

Against this background, I find it hard not to conclude that current estimates sugges-ting that only 20 per cent of adviser firms will leave the market after December 2012 significantly understate the extent of the problem.

Cost of training is frequently identified as one of the main reasons why advisers do not make full use of their systems. I find it hard not to see this as a false economy but such is the extent of the issue across the market that it might be time for a new approach.

Most industry software suppliers offer training as an optional extra but in practice this inevitably needs to big numbers of users failing to achieve the full benefits of their systems. Perhaps it is time for software suppliers to consider an alternative model where elements of training are factored into the monthly licence cost? Allowing the firm to spread the cost of training over an extended period might encourage more advisers to take up such services.

Software suppliers might see this as a method of revenue protection but once an adviser has invested in training and is maximising the benefit of the software, they are far less likely to switch suppliers.

Conversely, perhaps there is a case for software suppliers allowing a discount from their licence fees for firms that have subscribed to a specific level of training as this is likely to reduce the level of ongoing calls to their helpdesk.

We need to find ways to significantly increase the number of advisers adopting and fully using software at the core of their businesses as the alternative might be a far bigger contraction in the number of advisers after the RDR.

Ian McKenna is director of the Finance & Technology Research Centre

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