I am fed up with people who keep banging on about technology being the solution to IFA problems. Technology belief represents one of the biggest threats to the future prosperity of the IFA.
The truth is that the real beneficiaries of IFA investment in technology are the product providers, not the IFA and rarely the consumer.
Product providers are using technology to drive down their costs by getting the IFA to do the work they used to do.
I believe the role of technology in the professional IFA firm is overstated. Technology works at a tactical level. If fails miserably at a strategic level. Let me give you examples of both.
Some software solutions are excellent. An IFA firm will typically have a need for a database capable of interrogation. This is difficult to do if all your client records are paper-based.
It is possible to buy a bespoke data management software system at minimal cost. The real cost is the time moving the records to the computer.
The consultants will try to sell you the “integrated package” with back and front-office functions. It will be sold on the basis it will drive down costs and make you more efficient. It will have the opposite effect – driving up your costs and changing the way you do business.
Two questions to ask if you have been sold the integrated package. First is, have I had to recruit any more admin staff since I bought the system?
I know of an IFA firm which bought into the integrated package con and now everything they do gets typed into the system. They have two and a half extra staff to process work. Their costs have gone up dramatically. They are no more efficient. They have changed their work processes to cope with the software. The second question is – have I increased the number or quality of client cases since I invested in the package?
This throws up the second failing of the integrated system. Software should support the IFA process. It is often the case that the IFA has to change its processes to fit in with the software and at no advantage.
An ideal ratio of advisory/ sales staff to admin staff should probably be 3:1 in favour of the advisory staff. If you find your ratio is lower or you have more admin staff than advisers, you may well find your use of technology is the root cause. The wrong ratio will have a negative impact on cashflow and profits.
Product providers also con the IFA into believing their intranet sites are the best source of client information, illustrations, valuations and admin changes. This is only partly true. Much of the work that IFAs do is on existing arrangements, sometimes years old. These plans are often on old systems. The providers refer to these as legacy systems. A question to ask providers here is – are all your old products available on your intranet? The answer will typically be no. This means you will still have to use the old-fashioned approach to getting this information. It will take the provider weeks to produce the information for you.
Analysis, product database software and report-writing software all have their place in delivering good advice and service to the client. There is no need for an integrated system. The best approach is to dovetail the effective technology solutions into a robust manual process.
This will leave you in control and reduce your exposure to the risk of software failure. Do not hold your breath waiting for the technology solution, it is a myth.
In 1986, I remember meetings designed to produce an application for personal pensions that would be the same for all providers. This was through something called a common trading platform. In 1994, I carried out consultancy work with a provider and a member of the team was working on the same project. Here we are in 2002 and there is still no CTP.
If technology is the answer, it must have been a strange question.
Nick Bamford is managing director of Informed Choice