When clear evidence emerges that an initiative is delivering benefits, it should be a cause for celebration. This is what is being achieved with the delivery of online valuation messages from insurers to adviser’s client management systems. Statistics maintained by FTRC show these services as achieving over 150 per cent a year increase in use over the last three years.
When initially launched, 1st Software and Positive Solutions accounted for the vast majority of such valuation traffic.
Over the last 18 months, however, a far wider community of client management systems have become connected.
It would now be quicker to set out a list of those software providers which do not offer this function and I would no longer consider a package without such services as a serious option for advisers.
Dealing with a success story brings different challenges. Some software vendors have created systems so advisers can schedule valuations to take place automatically on a regular basis.
A small number of adviser firms are using this to update every client’s contract every day. This is generating message volumes far beyond levels for which systems were designed.
Presently, only a handful of advisers are using services in this way but, if replicated across the entire adviser market, the volumes could cause major IT capacity problems for insurers.
Association of British Insurers’ statistics for 2006 identify the number of in-force life and pensions policies at 80.5 million plus a further 2.6 million active members of group personal pension and stakeholder schemes.
If every adviser valued every contract every day, the industry would need the capacity to accommodate over 30 billion valuation messages a year.
Valuing all contracts once a week would reduce the problem to around 4.3 billion messages a year and monthly makes the figure marginally under a billion valuations a year.
Even if it is possible to agree that, in normal circumstances, valuations would only be updated monthly, there is still going to be a need to spread these requests across the month.
Revaluing every customer’s contracts in real time on the first of each month would inevitably cause massive problems for insurers on the given days.
Where valuations are required on a regular basis for a fixed date, the use of bulk services to deliver this information would appear more appropriate than real-time messaging.
Not all insurers have developed such capability but I suspect that the excessive use of real-time services may now give those that have not a compelling business case to do so.
To put this in context, the majority of the 83.1 million contracts currently in force would involve only a single valuation per year, admittedly on paper.
For now at least, most of those paper valuations still have to be issued in addition to whatever is provided online. The above figures are before one begins to consider how online valuations will be accommodated for the six million plus investment accounts via Investment Management Association members.
Online valuation services were designed to make it easier for advisers to get up- to-date client valuations on a regular basis.
By delivering this information directly into the adviser’s client management systems, firms are able to generate up-to-date client reports for more clients, more quickly.
Such capability is increasingly valuable as more and more advisers evolve their business model to a service-based relationship. The RDR is acting as a major catalyst in this.
Historically, the time taken to get the latest valuations, by phone or via a provider’s extranet has severely limited the number of clients for whom such regular reviews are viable. Current levels of valuation messages to client management systems are running at several million per year, each one representing a phone call saved for each party or a client receiving a higher level of service than before.
However, if the level of messages is necessary to support explodes along the lines outlined above, it is not hard to see how the benefits to advisers, providers and clients would soon be drowned out by excessive costs in maintaining such a service.
The challenges arising from the success of these developments have been the subject of intense discussion at the FTRC Adviser Forum meetings over the last couple of months.
At no point has anyone suggested any desire to cut down on the number of valuations made available to advisers where these are being used but there is concern that large numbers of messages are being obtained just in case they are needed.
It appears that limitations on service availability may be driving some firms to schedule daily valuations.
Many firms are using online messaging to their own client management systems to populate customer websites to offer clients online access to the value of their investments.
Where a life office’s valuation service might be closed when a client logs on in the middle of the night, the advisers do not want he customer to see an error message and hence are scheduling an updated valuation during normal service hours.
There is an obvious message here for providers that not having 24/7 availability of these services may be a false economy but it is also clear that, with some more elegant design by software providers, many problems might be avoided.
The most important question in this debate is what is the optimum frequency to get such valuations.
Obviously, there will be situations where market events, such as the January slump in equity markets or the departure of a key fund manger from an investment group, will create situations where large numbers of client portfolios may need to be reviewed at short notice.
In normal market conditions, I find it hard to believe it would be necessary to revalue a client’s long-term investments more than once a month.
If these are to spread evenly over the month, it would make sense if the valu- ation were set up for the anniversary date in respect of single premiums or a few days after any additional payments are received where ongoing contributions are being made.
As a result of the conversations at Adviser Forum, one major firm is already counselling its members to consider the appropriate frequency of valuations and another has committed to doing so.
I believe that all users of services have a duty to use them responsibly and the current dialogue appears to indicate that there is willingness to do this among advisers. Providers should, however, remember that ultimately, consumers themselves will expect this level of online access and persuading the general public to moderate use may be more problematic.
In just a few years, systems capable of processing vastly higher volumes may be essential. As an industry, we need to start looking at how this might be achieved.