As technology is crucial in helping large numbers of advisers with the RDR, I make no apologies for the fact that the tools being delivered to assist advisers with these challenges are becoming a recurring theme in this column.
Last week, Openwork walked me through the client segmentation and business cashflow tools it is now rolling out to members. These are a key part of its plans to enable 1,000 advisers from around 600 firms to be RDR-ready in advance of the end of 2012.
These tools are designed for Openwork to use with firms on a one-to-one basis. Around 200 firms are using the cashflow analysis tool, which was rolled out to its membership at their conference in January. The segmentation is being used by between 30 and 50 firms, having only been made available a couple of weeks ago.
The data used to populate the segmentation tool is all held centrally in Swindon. This covers all new business and increments since the end of January 2006, the point at which Openwork’s current new payment systems started. This includes all known new business cases and is populated by Openwork data as opposed to information from product providers. This gives their advisers access to far more data centrally than the members have ever had before.
A number of client firms have their own client management system capability but this is not mandatory so equally many firms will not have such a capability. Advisers are offered the Distribution Technology office suite for new business acquisition.
The segmentation initially allows advisers to look at their client base in a number of ways including age and gender and then to break the client bank down by age band and show the numbers of contracts clients hold. This allows the adviser to recognise where they could look to extend relationships to cover a more holistic product range.
As many members acquire businesses across the group, it can also identify situations where they may have bought a client but not met with them yet. Users can then drill down into more client detail. The system shows client name, age, product type, provider, premium, frequency, original investment amount, loan amount or sum assured in each segment. It also shows how many products are held by types – all/investment/ mortgage/pension/protection.
Users can look at clients overall or segment by age. In addition, clients and cases can be examined by product group and provider and the adviser can select individual providers to recognise the number of clients who have plans with them. Clients can also be examined by location – how far away from the business postcode do they live. This will be a valuable measure when trying to identify the future cost of servicing customers.
Again, this can be considered looking at all clients geographically and by product type. At this point, the user can look at client by production level, in terms of business, commission and premium.
By moving the mouse over an individual client listing, the adviser can reveal additional information, such as the client’s address, when data was last changed on system and who the individual adviser was. There is also the ability to search by any of these features to identify clients with particular attributes.
This gives the adviser a range of different perspectives on their client base.
This system should be of significant benefit in supporting the design of suitable client propositions. In the future, I would also like to see the data contained in the segmentation tool as a powerful way in which their advisers might populate a client management system if they wanted to adopt one, especially as the service includes the ability to export all the data to Excel for further manipulation and analysis.
The cashflow modeller takes the current sales structure, business mix and commission rates and models them in an RDR world. This shows the difference between what an adviser would earn on a commission basis and how that would change on an agreed-remuneration basis. From the landing page, it shows production in the last 12 months for protection, pensions, investments and structured products in terms of annual premium earnings and mortgages and general insurance on a fee basis.
It also identifies minimum annual cashflow requirement – how much they will need to keep the business going so, come January 2013, they have a chance of business continuity and average fund growth rate.
In turn, this breaks down how current income is made up, for example, protection two and four-year earning periods, and applies actual commission earned. It allows the adviser to change business mix, model what the level of initial adviser charge will be, for example, 3 per cent plus 0.5 per cent but also explore hourly fee or fixed-price charges for each different product type. This can then produce a graph showing the commission between their current cashflow and how it will be when they adopt the new model.
The tool clearly shows what the potential shortfall will be after the RDR but also how income streams may grow over time.
This does make it clear how hard life might be in the first four years after the RDR for those who have not adapted their model but also how in the longer term those that make the transition will potentially have a far more valuable business. The system can also cater for new types of charges such as ad hoc review fees, annual reviews and implementation fees.
The overall information can be exported to a pdf and creates a report that explains their transition plan. This is important at a time when the FSA is looking to see how far firms have gone in their RDR plans. Using this process, firms can model a range of solutions to help find what best suits them and their clients.
Both these services deliver valuable business insights to Openwork users to help them with their RDR transition. This is a crucial area for all adviser firms, so I am looking to see what other services similar organisations launch to provide a comparable level of support to their members.
Ian McKenna is director of the Finance & Technology Research Centre