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Life lessons

Last week’s publication of the next phase of the FSA consultation process on the retail distribution review has reconfirmed the death of commission as a method of paying for independent advice.

This must bring about an unparalleled change in the operating procedures for IFAs, leading to unprecedented change in the relationships between advisers and product providers. Put simply, when organisations are delivering large cheques on a regular basis you will forgive them a great deal. Once these payments stop, forgiveness evaporates overnight.

In recent months, it has become clear that senior management at the majority of life offices are failing to grasp the full implication of the changes ahead.

This view was reinforced recently by Bluefin director of strategy and operations Mark Turner. Clearly frustrated with life offices’ lack of understanding as to the real implications of RDR, Turner summed up the problem, saying: “Many just don’t get it. They keep asking what new bells and whistles we want from them. But it is not about minor product features, it is about whether they can do business with us efficiently”.

Under the new regime, advisers will have to clearly define their propositions for clients and demonstrate they are delivering them accordingly. This will bring into sharp focus an often overlooked fact about providing financial advice – giving clients advice is not in itself necessarily a time-consuming process but being in a position to give advice can take a great deal of time.

Meeting with a client to review their investments may only take a couple of hours, plus a couple more to execute their instructions. However, if preparing to see a client means an adviser, or their support staff, spends 10 hours updating the information on their investments, this is a cost which, under the new regime, will be passed on to the client.

Historically, preparation costs were subsidised by large amounts of initial commission. However, with newly required transparency, there will be nowhere to hide such costs.

As a result, advisers are going to need to maximise their efficiency and that means automating as many processes as possible. Firms will need to put a client-management system at the heart of their businesses and use this as the operating hub through which all activities take place and are monitored.

In turn, any business partner will need to provide seamless integration with such systems for all services. Illustrations, new business submissions, contract valuations and a range of other services must deliver true straight-through processes, not just the endless manual rekeying of data via a range of disjointed systems that typifies most interaction between adviser and provider systems.

Rare examples do exist of what these processes should look like, and the integration between Bright Grey and True Potential for protection quotes and new business submission is one such instance.

The fit between these systems is so close that I was able to test a case, going from quotation all the way to acceptance, on a clean, underwritten case with the need to complete just three data items – height, weight and alcohol consumption. The rest of the answers were yes/no radio buttons. This saves the adviser completing some 30 or so data items and even pre-populates the doctor’s details when a medical is needed.

This demonstrates what can be achieved when life companies and software vendors work effectively together. Unfortunately, this example is currently a glowing exception to the rule.

Similar depth of integration should be achieved throughout the business process. Valuation information for a provider’s entire range of existing products must also be available with fully automated delivery to the heart of the client management system.

Providers who fail to deliver this are putting both new and existing business at risk. When the client is paying the bill, if an adviser cannot easily obtain information on a contract this is virtually begging the IFA to move the business to those who can better administer it.

This last point is an issue the FSA needs to recognise as, frankly, they appear to have been rather taken in by the ABI’s protestations that all life companies offer a similar level of service. If only this were true.

Wraps and platforms are well placed to deliver an aggregated summary of the client’s position to the adviser in order to facilitate the review process. Addressing platform assets alone, however, is not going to fully meet these needs. It is essential to be able to give a client a full summary of all their pre-platform investments as well. Few platforms have really grasped this issue meaning they are undermining much of what they have to offer.

For some time, the FTRC house view has been that, based on current plans, we only expect four life and pension providers to be able to meet the efficiency and electronic trading standards that advisers will demand after 2012. A couple of others are well advanced in reinventing themselves as wrap or platform providers as a way of meeting higher operation standards.

Short of a radical change in approach, the number of life offices IFAs will be regularly doing business with at the beginning of 2013 is likely to be cut by two-thirds.

It is not that IFAs will fail to offer other providers’ products but simply that the charges they will have to impose will make it uneconomical for the client to select them.

Any companies who fail to meet the higher service standards necessary to compete in a post-RDR environment will only have themselves to blame.

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