problems with administration systems are leading some advisers to withhold their business or charge life companies for wasted time
Clerical Medical's closure last year to new business for group pensions was a spectacular side-effect of failures in administration systems in life companies. But the effects of mergers, badly designed procedures and costly, ineffective software also have consequences for intermediaries and their clients.
Advisers across the industry believe service is getting worse and this is starting to determine which companies they recommend and has lead to an increase in the practice of charging offices for time on lost business.
Some brokers have started withholding business from some of the largest life offices because they see poor service as being such a handicap that they are losing customers. Gary Ford, senior pension consultant at Wentworth Rose, has stopped recommending Standard Life, Canada Life and Axa Sun Life because of the length of delay in getting policies on the books.
Clerical Medical may be badly behind in processing group business but it is relatively good at dealing with individual business, according to Matthew Woodbridge, retirement planning manager at Chelsea Financial.
He points to two main components of good administration: how good providers are at supplying initial quotes to the intermediary and how well they perform when the business is in the bag. He cites Norwich Union as being a company that is as good as any when it comes to getting initial business processed, but thereafter service becomes sluggish.
Ford rates Norwich Union as one of the better companies in the post-retirement market and said problems in other pensions business, such as administration of pre-retirement products, is not especially bad at the company.
Other advisers are more scathing about the industry. Alan Steel, managing director of Alan Steel Asset Management, did not want to single out any one provider. He said: 'Everybody's equally awful. I'm amazed anyone wins a prize at those award ceremonies for service.'
Providers insist things are improving. Alasdair Buchanan, director of communications at Scottish Life, said: 'There is always a tendency to think things are getting worse. We are putting more effort and money into back-office systems and we see having good admin as a way to gain competitive advantage.'
Gary King, pensions manager at Save & Invest, said the industry has got progressively worse over the past few years due to a desire by life offices to cut down on resources at branch level and bring staff and systems to central offices.
He said: 'The process means life office staff do not take ownership of issues. You'll ask about making changes to a particular scheme and the local office will say 'that's something head office deals with'.'
King gives the example of NPI, which used to have three branches in Scotland but now has one branch of a similar size for the whole of Scotland and Newcastle. He argued that a tendency to cut people from regional offices stems from and exacerbates failures of communication and understanding between different parts of a business.
'Norwich Union tried to pull a number of different businesses under one banner to get economies of scale,' he said. 'They now have about three head offices so people are not sure where to direct calls, which acts as another delay on the administration.'
King said that providers are pushing resources away from servicing towards the acquisition of new business. 'I know of specific instances where they have moved good people in the servicing area to the new business department,' he said.
King argued that although this is an increasing trend, some offices are channelling more resources into regional centres, giving the example of Scottish Equitable. Steel said Zurich IFA was the only company he could find anything positive to say about.
The group's procedure, which it has been developing over the past two years, is to put the emphasis on personal service, Jim Reeves, managing director at Zurich IFA said.
'We have a three-tier approach with a dedicated adviser who sees clients face-to-face, a named associate consultant and a business support adviser.'
Steel said it is poor service, which shifts costs from the provider to the adviser.
He said: 'Everything that comes to us from insurance companies is wrong the first time. We have to employ extra people to clear up the mistakes providers make.'
Steel added that the problem has been getting worse over the years. He said: 'Everything is looked at from a finance director's perspective. All the companies seem to be interested in is new business figures.'
The reason the administration problem has been increasing, some think, is the added strain caused by stakeholder pensions.
Ford said: 'They have bitten off more than they can chew with stakeholder. I don't think some offices knew how much business to anticipate so service for ordinary business is suffering.'
Nigel Stammers, pensions strategy manager at Clerical Medical, said the way stakeholder was imposed made it hard to maintain a smooth administration system.
He said: 'We didn't know what stakeholder was going to look like until late in the day. We then had to wrestle with new products, new markets and new systems and there was no time for field trials.'
Standard Life also acknowledged that stakeholder added to the workload. Derek Thomson, customer services director, said resources have been shifted from existing business to deal with new business from stakeholder.
Another unforeseen spanner in the works was the large number of transfers from Equitable Life. However, Thomson maintains that the company still aims to get 95% of paperwork turned around within five days.
What should advisers do if administration is particularly bad? Many are starting to ask providers for compensation where business has been lost or they have had to spend a long time sorting out the fall-out from customers angry at sluggish service. But working out levels of compensation is a time-consuming task in itself, as King points out, and he is unhappy about the way some offices have dealt with claims.
He said: 'There is a large problem with advisers getting remunerated for their time. If they are being encouraged to move to a fee basis, they have to be paid for their time. Companies like Scottish Equitable become arrogant because they are large and think they don't have to pay.'
Buchanan says providers are obliged to carefully check compensation claims. He added: 'The regulator insists that any compensation claim must be able to stand up in a court of law. If it doesn't, it would be open to accusations that compensation was being used as a way to provide kick-backs to companies.'
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