Having spent several recent columns looking at the progress made in industry e-commerce over the last 15 years, this week I want to look at what I believe could be the biggest single barrier to the removal of cost in our industry.
In this week’s wrap supplement I discuss the likely evolution of platforms over the next decade. While there can be no doubt platforms have highlighted many of the failings of the investment industry in previous decades, I am increasingly concerned the platform community is making the same mistakes that undermined life offices as business partners for so many advisers.
As someone who regularly chairs meetings with many of the biggest advice firms that include both life offices and platform operators, I often still find the contrasting attitudes of the different communities an education.
I have lost count of the number of times I have heard certain life offices protest they cannot deliver information in ways advisers request it because it is “not that simple”, “not possible because of legacy systems” or “there is no business case” to do what their customer wants, only to hear a platform say “Yes, we can”.
To be fair, not all life offices are taking this approach but there are undoubtedly a handful clinging on for grim death to the Spanish practices of the 20th century although internally they invariably fail to recognise this.
But there are now certain situations where platforms are starting to exhibit behaviour reminiscent of life offices. Probably the key area where this arises is over the question of the depth of integration needed between the adviser’s client management system (CMS) and platforms.
In practice, increasing numbers of adviser businesses are looking to make their CMS the operational heart of their businesses. This will be crucial to trading cost-effectively after the retail distribution review. They wish all other systems they use to seamlessly integrate with the CMS to facilitate maximum re-use of any data obtained by either.
The platform community is making the same mistakes that undermined life offices as business partners for so many advisers
Anyone seeking evidence as to why this is so important need look no further than the recent FSA consultation paper 11/08 on the reporting requirements for adviser charging. This outlines a considerable level of additional data advisers will need to supply to the regulator along with the existing information submitted using the Gabriel system.
Under the new arrange-ments, advisers will be expected to justify their range of charging models and the costs associated with each model. The level of resources necessary to maintain such information manually does not bear thinking about. Equally, it will doubtless require some fairly hefty development by CMS providers but it is exactly this business automation that helps them demonstrate the value they bring.
Advisers who do not place a CMS at the heart of their firms face spending vast amounts of chargeable time generating the necessary regulatory information. For any supplier to not communicate seamlessly with such systems should be out of the question.
Imagine a scenario in which Unilever suggests to Sainsbury’s it will not use straight-through processing to receive orders but wants the retailer to manually re-enter data into its extranet or other online service. This would be unthinkable. Why, then, do manufacturers in the financial services market believe they should treat the distributors any differently?
This is not a problem restricted to life offices. Lately I have come across several platform operators challenging the role of the CMS at the heart of the adviser practice.
I found myself experiencing a strange feeling of déjà vu in one recent meeting. At the end of the 90s I was heavily involved with a project designed to facilitate electronic trading in the life and pension industry. By now this project should have created an environment where paper proposal forms are extinct.
As anyone actively writing new business knows, with the exception of a small number of protection providers and a handful of other products, we are still a long way from this nirvana.
One of the main stumbling blocks was life offices’ reluctance to recognise that delivering a seamless processing experience is, in practice, far more important than a red or blue or green or yellow brand appearing on a screen. As advisers and platforms are beginning to address the same issues around straight-through processing, I am seeing a number of platforms showing a similar reluctance.
Recognising that what the platforms and life offices fear is effectively being commoditised, becoming no more than a plug and play component into advisers’ systems, the harsh reality of life after the RDR is going to be that this is part of the cost of doing business.
The challenge to organis-ations is to differentiate themselves in other ways and I see a number of other technologies emerging that might facilitate this.
For the most part, the platform community has done an excellent job of learning from the previous mistakes of the life industry but on this point, the message does not seem to be getting through. Regardless of whether you are dealing with a platform or a life company, taking cost out of transactions after the RDR is mission-critical.
In practice, it will be those businesses that recognise ease of administration and processing wins out every time over brand that are best placed to reach the enormous dividend the RDR presents.
Ian McKenna is director of the Finance & Technology Research Centre