If nothing else, last week's reports from Messrs Sandler and Pickering seem to contain something for everyone to dislike.
The FSA will probably not like being told that it has to start providing far more guidance on what it is expecting from the rules. IFAs will have some, perhaps understandable, concerns about the products designed to be sold without advice. Life offices will hardly be celebrating the fact that they can no longer help themselves to 10 per cent of the profits in a with-profits fund and all the additional transparency that brings with it.
There can be few sectors of the market where the documents are pretty much all good news. Technology providers are one such exception. Both reviews provide considerable opportunities.
Sandler is clear that the industry needs to make end-to-end electronic processing the norm for all transactions to drive out costs. You will hardly be surprised that this is a message with which I would entirely concur. A further message from Sandler is that the industry needs to work harder to co-operate in the development of standards and trading platforms to make this happen.
On this point I have good news. In the last few months, there has been an unparalleled level of co-operation between a group of the biggest IFA firms under the auspices of the Adviser Technology Forum. This already involves seven of the biggest IFA businesses accounting for around 25 per cent of all RIs in the market and it is believed some 40 per cent of business written. A number of other major IFAs are in active dialogue about joining the group.
For some years, Origo has, of course, been developing a range of technology standards to encourage adoption of-commerce. With the emergence of the ATF as a conduit for the views and requirements of the major adviser firms, it has the potential to make a significant contribution to this process.
Origo and the life offices are being invited to participate in a dialogue with the aim of achieving a consensus development agenda for-commerce and making electronic communication the standard method of information exchange. This should lead to a situation where many of the old expensive and inefficient processes within the industry can be replaced with lower-cost alternatives that add benefits to advisers, providers and consumers.
Because of their narrow margins, the new “stakeholder” products will necessitate a high degree of automation in both their acquisition and servicing. It is encouraging that the proposals do not seem to inhibit the proposed low-cost products with unrealistic requirements such as having to make contracts available on paper as well as electronically and a requirement to allow trivial levels of one-off contribution that cause significant additional costs. These conditions have added considerable unnecessary costs to what will probably from now on be seen as first-generation stakeholder pensions. While it is not too late for such conditions to be added to the new products, to do so would run contrary to the stated requirement to achieve end-to-end electronic processing.
One point that has to be understood by Government and regulator alike is that to achieve the lowest cost, the industry must be able to require that consumers also communicate with them electronically.
It would appear that Pickering has recognised this point as he recommends that communication with a member can be made in an “appropriate manner”, which can be electronic where this is reasonable. It is to be left to the “new kind of regulator” recommended in the report to decide what is reasonable. It is, however, identified that using electronic media may be appropriate where most or all employees have access to the internet or an intranet. We are already seeing some advisers making significant advances in working in this way.
A good example is thomsons online benefits, the-business division of Thomson's Group, which has established an excellent online group benefits service. This allows it not only to set up new schemes for group pensions, risk and medical cover, all created using a signature-free process and delivering new business information using XML messages, but it also allows employers to set up payment online and offers members full access to details of their investments 24 hours a day and access to a range of voluntary benefits.
Also to be commended in these areas is Woolwich IFA Services (Wifas), which has not made a very considerable investment in the extranet service it is building for group scheme members but a very considerable contribution to working on the industry standards, meeting one of Sandler's priority requirements.
Pickering identifies effective communication as a readily attainable goal should his simpler pension landscape be adopted. Organisations such as Thomsons and Wifas are in fact already showing how much can be achieved in this way.
While it is greatly encouraging that both these key studies make it clear how much the industry has to gain from technology, it must redouble the pressure for industry technology to deliver.
Ultimately, what we are talking about is eliminating unnecessary costs from the market, which is an essential in a 1 per cent world. Is it achievable? Certainly. Will it be easy? Certainly not. These things are not going to happen by accident or without any pain. What is important is that support and resources are made available to achieve the desired result.
Never before, in my experience, has there been so much willingness on the part of the adviser community to work together with providers on these mutual aims. Many life offices are responding positively to this chance and I believe it is they who will gain most.
Many of the components are in place to make this a reality. What we must be sure of, however, is that there is true co-operation so the efforts of those already contributing can be maximised.
The Financial Technology Research Centre's brief summaries of the key elements of both reviews, including the technology issues, can be requested from www.financial-technology.net.
Ian McKenna is a consultant and director of the Financial Technology Research Centre, which works for a wide range of industry organisations, life offices and technology companies, including Microsoft and The Exchange. He can be contacted by email at firstname.lastname@example.org
Tel: 020 7935 2599