The case for technology

Even the most stalwart technophobe financial adviser now recognises that the ‘paperless’ IFA business is on the way to becoming the norm. More product providers are improving their extranet services, portals are expanding links with providers and IFA software companies are rolling out increasingly sophisticated upgrades. By 2009, IFAs are expected to be transacting £3.2bn of business electronically, according to a confident forecast by The Exchange 2005 Technology Index. In short, the IFA industry is fast approaching a situation where to ignore integrating e-commerce into their business models is to miss out on a vital opportunity to add value and trim costs. Despite the hyperbole from software companies, portals and some product providers about the benefits of e-commerce, much of the IFA community is yet to adopt these technological solutions whole-heartedly. Less than half of all advisers use online services on a daily basis, according to the Adviser E-Enquiry project, a major research initiative led by 1st Software, which surveyed 389 advisers. Advisers blamed this reluctance to use e-commerce services on a number of factors, including their feeling that it took longer to complete applications, re-entering data was problematic and that they had insufficient training and experience. Few of the IFA businesses that have adopted client management or back office systems appear to be using it to its full advantage. For example, they are not taking the opportunity to pre-populate online applications with data straight from their back office systems. In all, 72% of advisers surveyed by the Adviser E-Enquiry exercise never, or rarely, submitted business online using pre- populated data straight from their back office database.However, it must be pointed out that few product provider extranet sites currently have this capacity. This is one of the areas that Ian McKenna, director of the Finance Technology Research Centre, believes will be addressed by product providers in the coming year. “This is a major area that has not been capitalised on anywhere near as much as it should be”, he says.It seems that 2006 will be something of a watershed for the merging of industry and technology, with a number of long awaited developments being rolled out, such as automated commission processing and electronic policy tracking.McKenna added that the industry is getting to the point where IFAs are missing out on creating value if they do not adopt technological applications in their business models. This too applies to product providers, particularly in the protection area, according to McKenna, who said that the bulk of protection business was now conducted electronically and product providers who did not have an online offering were losing business. For instance, Edinburgh-based insurer Bright Grey has been slow to adopt e-commerce services, failing to launch a full service extranet offering until this month. Applications for Bright Grey products can now be submitted online and IFAs will have the incentive of earning an extra 10% of LAUTRO commission.Previously, the firm offered an electronic quote service, but all applications had to be made on paper. At a time when many protection product providers were equipped to convert electronic quotes into full applications online and in real time, Bright Grey’s extranet service was in desperate need of an update. In its defence, it must be pointed out that Bright Grey is the youngest company in the sector, having launched only in 2003.The disjointed and, in some cases, incremental shift to e-commerce within the financial product provider industry has created obstacles to even the most progressive IT literate adviser. While the protection industry has in many ways been leading the pack in both the scale and utilisation of its services, there is a significant level of differentiation among providers.Some providers report that up to 75% of their protection business is now written electronically, while other providers do not even offer the service or require a hard copy as well.According to the Adviser E-Enquiry project, IFAs said that huge variations in the quality of online services were responsible for the delay in e-commerce adoption. As illustrated in Graph 1, 38% of advisers surveyed were of the opinion that it took longer to conduct business online, while 30% felt that the re-keying of data and their lack of understanding was behind their reluctance to use e-commerce services. Other main deterrents were lack of benefits, security concerns and fear of making mistakes.In order to better understand how IFAs are grappling with the advent of e-commerce, Money Management spoke to four IFA firms to discover whether they were treading the path towards becoming a paper free office. Case study 1: Informed ChoiceMartin Bamford, principal of Surrey-based IFA Informed Choice, is perhaps typical of many IFA firms in that he knows what he wants to get out of technological solutions but is uncertain of as to how to get there.Bamford installed client management system 1st Adviser Office into his firm two years ago. However, the software has only been utilised in the business in the past four months, being employed primarily for record keeping and creating consolidated client statements. While it is still too early to calculate whether its implementation into the Informed Choice business model has yielded cost benefits, Bamford said that his clients were impressed by the firm’s ability to present all of their policies on one piece of paper.Emboldened by this recent success, there are plans afoot to formulate an inhouse technology strategy in order to get greater use out of the software by using it in the review process and to automate applications. In addition, the firm is considering engaging a managed server solution so that web-based applications and client details can be accessed and conducted offsite.The firm has been making use of provider extranet solutions for roughly five years, primarily using it for investment bond and protection business. However, this online business accounts for less than 5% of the firm’s workload. The prime reason that Informed Choice is sticking to the paper-based approach is because it is considered to be a more accurate and quicker way to process applications. Bamford suggested that product providers had developed extranets to shift the burden of data entry on to IFAs, adding that if provider extranets are to be more widely used, these sites would require further development in order to save time for both IFAs and clients. The firm’s selection criteria for new protection products are very much driven by which product providers possessed user-friendly extranet solutions. There are also significant differences between those product providers that were investing in e-commerce, such as Friends Provident and Standard Life, and those that did not, according to Bamford.Case study 2: The Melia PartnershipFor an early adopter of technology, Derek Frost, principal of The Melia Partnership, the use of e-commerce has yielded tangible cost benefits for his IFA firm. He implemented the Quay Client Care Desktop into his IFA business in 1998, as well as Microsoft Office and ScanSoft PaperPort 10. Over the past year, Frost estimates that he has increased his margins by 12% due to time saving benefits of upgrades within the Quay package. These include the ability to pre-populate chosen portals – such as The Exchange and TriGold – with back office data and an automatic financial express update that feeds into the back office system.Over 70% of business conducted at The Melia Partnership is online, with the workload split between mortgages and protection. Frost identified Friends Provident and Scottish Provident as having the best extranet services among the protection providers, based on the ease of use, speed of quotation, conversion to full application and the e-mail notifications of status changes.Frost said that Bright Grey – which is upgrading its e-commerce proposition in January – had been dragging the pack in terms of standards of its online services, which required a full hard copy as well as an electronic copy for all applications.He said: “It is infuriating almost to the point of not recommending them. Based purely on online facilities we are preparing to deselect product providers that do not have a portal of good standards”.When asked about extranets and portals, 78% of IFAs identified the speed of the service as one of the biggest factors that dictate the choice of products, according to the Adviser E-Enquiry research. For 60% of IFAs, it was the most crucial factor influencing their decision to do valuations online. Many product providers offer enhanced commission to entice more IFAs online or, for the more cynical, to sweeten up the advisers who regard e-commerce as a ‘convenient’ shift of workload from provider to adviser. Enhanced commission was identified by the Adviser E-Enquiry project as a prime motivator to use e-commerce, with just under half of all IFAs seeking greater financial incentive from providers.Frost admitted that enhanced commission did add up collectively, but stressed that it was not the main driver behind his adoption of e-commerce. For him the primary motivation was time and cost savings.Case study 3: Positive SolutionsWhile some IFAs have embraced technology, you could say that Positive Solutions Financial Services has given it a bear hug, having aimed to be a completely paperless business from its inception in 1997. All Positive Solutions advisers receive a laptop and a personalised extranet site, all client details are kept online and all clients receive a personalised Positive Solutions website where they can check the value of their investments and policies in real time.Any paper mail that IFAs receive is scanned and sent to individual extranet sites, with the paper copies then shredded. All commission payments are automated through the GDI electronic payment system and paid daily. The firm also has an electronic pipeline with 25 product providers, which enables advisers to track pipeline business electronically rather than verbally or on paper. These automated services allow Positive Solutions to streamline its business and reduce costs, and its progressive and adventurous approach to e-commerce has enabled it to confidently expand in an environment in which many IFA firms are struggling. In the past 12 months alone, for example, the firm has recruited 300 registered individuals. Daniel Harrison, marketing manager for Positive Solutions, said that the firm had been able to expand because a paper-free business model had significantly reduced overheads. He pointed out that, for more traditional IFA firms, the cost of the office space required to house the many cabinets of hard copy client details and the support staff required to manage that data can be crippling.He added that the time saved through the electronic process freed up more time for IFAs to add value by spending more time with clients and researching.“Our economies of scale mean that the bigger we get the more profits we make”, he commented.The cost savings may be there but, as Harrison points out, it is not easy for many of the larger, established IFA firms to become paper-free, as they are simply unable to make the significant investment required to put client details online, provide laptops and train staff. This places smaller IFA firms at somewhat of an advantage, as they are small enough and flexible enough to adopt more e-commerce practices into the business without huge costs.Case study 4: Atlas Financial ConsultingStuart Hay, of Aberdeenshire-based Atlas Financial Consulting, has added value to his IFA business by working remotely with clients, using his laptop to access e-business links with providers while his wife, Carol, runs the administration at the business’s premises. Formerly a Prudential investment professional, Hay was acquainted with the advantages that e-commerce could provide when he established his firm in August 2001. He installed 1st Adviser Office on day one of the business, utilising its Client Transfer System to access and update his client management database while on client visits. The ability to update the current value of a client’s portfolio, obtain mortgage approval and conduct protection applications while sitting at the kitchen table with clients has been of great value for his business and has allowed his clients to better understand his service, according to Hay.Around 85% of all of his protection business and half of his investment business is done online, with the functions performed including submission of new business, new business tracking, comparative quotes, valuations and policy enquiries.Although Atlas could be a paperless office, Hay said that hard copies are also kept in order to make regulatory compliance visits more straightforward.The main drivers in the firm’s adoption of e-commerce were enhanced commission, time saving and reduced error rate, while online submission also saves the cost of photocopying, reduces some postage costs and limits the likelihood of proposals being lost in the post. He believes that time saving could be improved in some product provider extranet sites, such as Prudential, and opined that Friends Provident currently offers the most user friendly and efficient system. ConclusionThese cases demonstrate that for e-commerce services to become truly entrenched in the IFA community a meeting of minds is required across the industry in order to deliver end-to-end solutions that meet the needs of both intermediaries and providers. Online portal providers such as Assureweb have highlighted that greater co-operation and integration between portals and provider extranet sites must exist if IFAs are to conduct more business online.The portal’s recent research raised concerns that technology providers were failing intermediaries by not giving them a ‘joined up’ experience – resulting in lost time as they jump in and out of different provider extranet sites and re-key data multiple times. The Adviser E-Enquiry project came to the same conclusion, citing that the industry needed to come together to deliver technology solutions across client management software, portals and extranets that were ‘joined up’.Greater training and support may also go some way to helping IFAs to cast off their L-plates and venture into the fast lane of the e-commerce highway – around 62% of advisers have never received any training on online services, portals and extranets.The advance of the financial advice industry into the e-commerce arena has been slow, but the industry may soon turn the corner and finally get serious about its e-commerce services. If this happens, no doubt many more IFAs will gain as the tangible cost and time saving benefits they are looking for become glaringly obvious.