With the onset of depolarisation, there has never been a more important time for financial advisers to demonstrate the value for money that they provide to their clients. This is inexorably linked with the need for advisers themselves to have a far greater understanding of the profitability – or otherwise – of every client.In practical terms, this means the adviser needs to be able to process commission payments quickly and effectively, then allocate them to each client’s account. If commission is processed on paper, there is the very real risk that, in the case of trail or renewal commission, the cost of reconciling such amounts to individual clients could actually exceed the amount received. The alternative is to process commission payments electronically. Details of payments are automatically imported to the adviser’s client management system. In turn, this should match payments to each client’s record and allocate every item, however small, to the client’s account. As part of this process, an exception report should be generated where commission received differs from the expectation. An increasing number of the more sophisticated client management systems such as Client Care Desktop from Quay and Intelligent Office from Intelliflo are offering extensive facilities to achieve such significant business improvements. The idea of electronic commission is nothing new. Origo commission standards for life and pension providers have been around for over 10 years but take-up by IFAs has been limited. Electronic commission has certainly not yet replaced paper. To put potential savings into context, Bankhall’s protection arm, Point One, operates almost entirely using automated commission processes and has significantly fewer commission staff than its sister company, Bankhall Investment Associates, despite having twice the number of members. Jeff Tate, director of operations at Bankhall, says: “Commission automation has been a project at Bankhall for the last year. We have been able to achieve significant improvements to service to our members with a number of life and pensions providers and, with the help of Adviser Forum, are now making similar progress with a number of fund management groups.” >From the life office and fund manager perspective, it is important to recognise that advisers are more interested in receiving the information than which technology is used. The old EDI format may be seen as old hat and XML the way of the future but, from the adviser perspective, if they can be given the information in a file that can be moved seamlessly into their systems rather than have to spend hours entering it manually, almost any electronic format is a major benefit. A small number of life and pension providers, including Friends Provident and Standard Life, have made important changes to their EDI commission messages. Standard Life e-commerce manager Ross Dunlop, notes: “We have found that making a small number of significant enhancements greatly enhances the value of EDI to IFAs.” That these minor changes have made a significant difference in the way EDI commission is used by some of the biggest advisers underlines the limited use that was being made of EDI commission previously but also shows that many more advisers could now be achieving savings in the same way. It also demonstrates that other providers could achieve a greater return on their existing investment for a very limited outlay. Origo published an upgraded version of the EDI commission standard last year in addition to its XML data standards, However, I gather that few insurers have implemented the upgrade as staff with the skills to manipulate EDI are hard to find and in some quarters it is being suggested that the cost of adopting the new Origo EDI standard is prohibitive in proportion to the benefits that can be achieved. In a highly innovative approach, Easylink, the biggest of the EDI mailbox providers, is offering a low-cost solution that enables those life offices which do not wish to carry out a full upgrade to the latest Origo enhanced EDI standard to make electronic commission readily available to IFAs. This service, which has already been adopted by Scottish Equitable, involves Easylink carrying out a simple mapping from the provider’s existing systems so that the information can be delivered to the advisers in an enhanced format without the need to carry out a full standards upgrade. Any provider that has the data elements from the Origo standard with their system can adopt this approach. According to Scottish Equitable e-business manager Stan Mack, this means it can deliver electronic commission information to any IFA that wants it in either EDI, Origo XML version 1.0 or a Comma Separated Value format. The latter will for many advisers be the easiest format to use as it means they can access information using Microsoft Excel. In the past, electronic commission services from the fund management industry have been virtually non-existent. However, during last year, a fund management electronic commission project was established via Adviser Forum and a number of leading fund managers, including Cofunds, Fidelity, Invesco, Jupiter and New Star, are now piloting such a service with leading adviser firms including Berkeley Berry Birch, Bankhall, Positive Solutions and Sesame. A number of other fund managers are considering joining this initiative. During 2005 it is expected that these services can be rolled out to a wider group of IFAs. It is worth mentioning that not all providers are going about this the right way. In recent months I have come across some wonderful examples of how not to do things. The worst case must be that small number of life offices and fund managers which have suddenly started sending commission statements to advisers as Adobe Acrobat PDF files. The net result is that the adviser has to print the commission statement and then manually enter the information into their system. Any organisation that has taken this approach has not thought things through from the perspective of their customer, the IFA. Needless to say, none of the companies which have made such mistakes are involved in the current Adviser Forum commission activity. Automating commission processing and reconciliation can release administrative staff to engage in more client-focused activity rather than spend hours entering data from paper. Advisers are increasingly indicating that those providers which offer the best electronic services to help them reduce costs to the adviser firm and their clients will put themselves in an advantageous position when it comes to product selection. Advisers can obtain more information on how to take advantage of automated commission by visiting www.adviserforum.org/auto_commissions/quickguide.