Like it or not, depolarisation looks certain to become a reality in 2005. This begs a number of questions. What sort of technology proposition is likely to succeed in the multi-tie environment? How will depolarisation affect the take up of e-commerce? What requirements are providers likely to make of multi-tied advisers?
This was a subject explored in some detail at a recent Adviser Forum meeting during a discussion on 2005 business and technology priorities.
From these discussions, there was mutual recognition among provider and adviser firms on a number of points. Some may seem unpalatable to advisers but they amount to an economic necessity if the industry is to use multi-ties as a way of cutting costs for consumers.
Reservations were expressed that a number of providers are proceeding with a vision of technology used in a multi-tie world that could seriously impair their ability to capture market share, in an opportunity that is unlikely to be repeated in less than a decade.
It is clearly recognised that to allow for the increases in remuneration that are widely accepted as an inevitable consequence of depolarisation, insurers will have to achieve significant economies. Becoming a multi-tied adviser will almost certainly entail agreeing to submit all new business electronically.
The idea of an independent adviser being free and able to attract the best products and processes in the market is a wonderful concept but the reality is that, as an economic proposition, it is fatally flawed. It precludes the ability to negotiate volume pricing on the basis of economies of scale and results in advisers and providers maintaining relationships that lack the critical mass to be economical.
A depolarised world presents the opportunity to cut the cost of trading radically as long as you do not try to use paper.
If a paper-based option is to exist for multi-tie arrangements, this will need to reflect the adviser absorbing the additional cost that the provider is incurring, resulting from the adviser not submitting business in a costefficient manner.
To put that into plain English, if you want to submit paper proposals in a multi-tie world expect to lose about 50 per cent of your commission.
If you were to create a new business from scratch tomorrow, who in their right minds would build this around paper processes? Multi-ties are exactly that – new businesses – and should not be impaired by the archaic processes of historic distribution.
There are sound economic reasons for providers making such stipulations. As a provider, once you reach the situation where you are processing over 70 per cent of your new business in any product area electronically, the additional costs caused by paper app-lications can become disproportionately high.
The FSA's proposal that technology supplied by providers should no longer be covered as part of the indirect-benefit rule may go some way to alleviate the economic costs of this burden. However, such an approach will necessitate a fundamental change of attitude among many advi-sers who will no doubt need significant training to become fluent in the use of e-commerce.
Judging by remarks that I have heard made by several big advisers, these arguments are generally accepted and it is now only a matter of time before these changes take effect. It is increasingly recognised that any provider that does not make reduced commission for paper business a mandatory requirement for multi-ties is likely to be deluged by paper and find their cost of business unsustainable.
The risk of a provider using the wrong technology strategy to support the multi-tie market should not be understated. During much of the 1980s and early 1990s, there was a succession of failed distribution technology projects precipitated at the very least by the closure to new business of several life offices operating tied salesforces. In many instances, such closure was a precursor to their ultimate dem-ise. I believe that the risks for providers who get their multi-tie technology strategy wrong are just as great.
It has been suggested that a significant number of insurers believe that multi-tied advisers should adopt a series of provider-foc-used extranet services to submit business. I can believe that many have such a perception but I am in no doubt that pursuing such a strategy will lead to their organisations going the way of the dodo and the tied agent – casualties of evolution.
If providers want to make technology the most cost-effective way of doing business in the 21st Century, they must be prepared to deliver solutions that will help the adviser work in a cohesive way with their client rather than develop an isolated response that is wholly based on the provider's ideal scenario.
For too long, we have seen IFA-facing technology fail because it did not take adequate account of the practical realities of operating as an IFA. If this lesson has at long last been learnt in the IFA space, it would be sheer folly to revert to a provider focus for multi-ties.
Space does not permit me to provide a full list of the necessary elements for a successful multi-tie technology strategy but one issue that will be essential is to allow the adviser to deal with all the product providers they are tied to through a single system. It will be essential for advi-sers to be able to enter all client-related information via a single entry point and re-use it across not only multiple investment providers but also potentially multiple disciplines.
This will mean that a provider may need to work with a number of different technology standards. The Origo standards for life and pensions are a given but if the adviser is authorised to transact general insurance, then some level of Polaris or i-Market interface must also be seen as essential.
In the mortgage market, in the absence of a clear technology standard, the issue becomes even more confused.
Those providers which can structure their technology services delivery for the depolarised world will be well placed to grow their market share while improving their profitability.
The issues I have set out here scratch the surface of what is necessary to achieve such an objective but the risks of getting it wrong will, I hope, serve as a warning for those who may not be ready with a truly adviser-friendly solution once multi-ties become a reality early next year.