The FSA’s treating customers fairly initiative has intensified discussions around what the financial services sector should do to ensure its customers receive compliant, consistent and relevant advice at all times. Last year, a mystery shopping exercise by the regulator suggested that the distribution process, in particular, was in urgent need of attention, with 72 per cent of financial services companies investigated needing to improve their levels of TCF in this vital area.
Further examination has revealed that activities such as risk profiling and suitability letters are a specific problem area. These are repetitive tasks which are completed manually, so it is not wholly surprising that inconsistencies will arise from time to time. What can we do to improve matters?
We would argue that industry needs to embrace any new developments that can minimise human error in the distribution process if it is to have any chance of meeting its TCF obligations.
Advice software available to providers and advisers is now at such a level that it can play a major role in achieving this objective.
Distribution Technology has recently started a benchmarking service which allows our adviser and provider clients to measure their advice processes and compare them with other firms. Using this research tool, we have been able to establish that advisers generally spend between five and 11 hours working on each case. A straightforward new investment of £50,000, for example, involves 5.5 hours of an adviser’s time.
The reason it takes so much time is that advisers have to undertake a large number of tasks during the advice process and many of these are fragmented and manually completed. Risk profiling, needs analysis, product and fund selection, illustration and quotation activities – all important parts of the process – are generally undertaken using separate systems.
Completing the suitability letter is a hugely arduous process. We have even been told that advisers actually avoid selling certain types of product so they can avoid writing a suitability letter.
All this means the process is taking around 30 per cent too long and advisers are unable to spend enough time with their clients. Our research shows that up to 67 per cent of an intermediary’s time is spent in the office, creating and administering the sale, rather than out with clients, selling and developing relationships.
There is a need for advisers to adopt a straight-through and non-fragmented process which ensures time spent on a sale is reduced and advisers need to rekey as little data as possible.
We can learn from the travel industry on this front. Like our distribution process, margins are paid from the airlines, ferry operators and hoteliers (the manufacturers) to the travel agents (the distributors) and there are many components that the travel intermediary must pull together to complete a sale. Travel firms found that putting easy-to-use systems in front of agents, enabling them to complete an advised sale from end to end in a single process, had a significant impact on productivity.
In the US financial services market, too, there have been developments that may be significant for the future of advised distribution in the UK. To deal with challenges including a transition to wrap-type arrangements and new regulatory change, US firms have moved towards sophisticated and complete technology solutions. By doing this, they have combined the benefits of traditional point-of-sale solutions, which offer broad support for the sales process, and stand-alone planning and modelling tools that are great for performing analysis.
This shift has resulted in applications such as Merrill Lynch’s New Wealth Management Workstation, which cost over $1bn to build. It used best-of-breed components and partners to create a package that includes sales support, financial planning tools, customer relationship management tools, data and trading capability for 14,000 advisers and the hardware to run it all on.
Advisers using the New Wealth Management System do not have to rekey information because as many parts of the distribution process as possible are completed on a straight-through basis, meaning technology is at the forefront of making life easier for US advisers.
We have found that by using the right technology, advisers can reduce the total time spent processing business by up to 54 per cent. More specifically, when advisers complete a needs analysis and the dreaded suitability letter, the software is cutting the total time by as much as 85 per cent.
Financial advice software is more than capable of freeing up advisers’ time and the immediate impact in terms of TCF is that they have more time to ensure clients are receiving the most relevant advice. The added bonus is that advisers have more time to concentrate on what they do best.
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