View more on these topicsNews
Against this background, it is hardly surprising that more advisers are recognising that owning and using client administration software is now a must for their business. Two weeks ago, I looked at some of the issues on choosing between desktop software and the emerging application service provider offerings. This week, I want to look at some of the questions advisers must ask themselves before trying to find a system which suits their business. Having decided you are going to install a system, it is essential to get one that can really deliver what you need. The choice of software is critical to the success of your business. Get the decision right and you will be buying a platform which should enable you to increase your efficiency and profitability significantly. Get it wrong and you will spend every working day ruing the decision. For this reason, it is essential to spend time fully considering all the issues before you commit to your investment. Although virtually all sectors of the financial services market have undergone tremendous consolidation in the past five years, the adviser software market seems to have been immune to such changes. Although there has been a number of takeovers in the past year or so, these have tended to be bigger organisations acquiring smaller ones. There have been no mergers between established players and it is hard to think of an IFA software provider that has ceased trading. This might be taken as an encouraging sign, but I believe it makes it even more important to investigate the financial strength of any supplier fully. Sooner or later, some of the smaller players must fall. Generally, software is paid for in two ways – either the user pays an initial licence fee plus an additional ongoing amount each year for support, usually around 20 per cent of the original licence fee or they can opt to pay a lower monthly rental for the software, which includes support and ongoing enhancements. In the adviser market, with one or two exceptions at the very top of the market, the companies that have tended to be more successful have used the latter approach as it provides them with an ongoing revenue stream to cover the evolution of the software and generally keep the business running. It is also important to look at the size of the software’s user base. This can influence not just the profitability of the company itself, but if anything does go wrong, will it be attractive for another company to come in and take over the user base? As a rule of thumb, I would be wary of any supplier that cannot demonstrate more than 1,000 paying user licences on a rental basis. If a software provider is operating on an up-front licence fee, I would usually seek a professional opinion on their last three years’ accounts. References are essential when choosing a software provider. I would recommend making your own contact with existing users rather than relying on those put forward by the software provider. Speak to other advisers about their experiences. In addition, approaching technology consultants from life companies can be an excellent way of finding someone who is using the system that you are considering. In recent years, a number of new players have emerged targeting mortgage advisers, driven in no small part by the onset of mortgage regulation. These systems are focusing on the needs of mortgage advisers at the moment, although a number have stated their aspiration to be able to offer similar functionality in the investment world. But in reality, one of the first decisions you are probably going to have to make is: do you want a mortgage client management system or an investment client management system. At this stage I do not believe a suitable product exists to cover the needs of both markets fully. The ideal would be one system which could fully cover the needs of advisers practising in the investment, mortgage and general insurance markets. In my exper- ience, such a system does not exist, so whatever system you opt for is going to be a compromise. For an adviser concentrating mainly on life, pensions and investment products, the chances of acquiring an all-singing, all-dancing system are limited. Despite adviser software systems having been around for approaching two decades, the various offerings remain diverse and choosing the right system for you will very much depend on exactly which functions are most important to you. Some packages are very sales-oriented, primarily designed to support a specific sales process electronically, including tools for fact-finding, needs’ analysis and compliance. Others may take a more detailed holistic approach to financial planning, investigating in depth the client’s attitude to risk and assisting in the creation of suitable asset allocations to match that attitude to risk. Some advisers are keen to use technology wherever possible in the advice process, to carry out the number-crunching and deliver very specific recommendations, others prefer to use it just as a more efficient way of storing information. When selecting a system you need to decide which ways the advisers in your business will use the system. If you want to use the system to produce regular reports on client holdings it will be important to select a software provider that has a significant number of integra- tions with life and pension providers to use the Origo Contract Enquiry messages and EMX for fund management valuations. Some software will focus very much on so-called back office functions such as record-keeping and administration. Commission reconciliation and processing are areas where significant economies can also be achieved. How much time is wasted manu- ally processing commission? No one system currently leads the market in all the above areas so it will be important for the adviser firm to identify which processes are most important to them and prioritise these areas when selecting a system. The software package you choose will increasingly define the processes you operate in your business once it is installed. It is important to select a system that uses processes you are prepared to follow, otherwise it will probably only be used to a limited degree and not represent a good return on your investment. This will be one of the most important decisions you take in the next few years, so do not be tempted to rush it.