It is a rather frightening thought that in the 21st century, the vast majority of advisers stil...
It is a rather frightening thought that in the 21st century, the vast majority of advisers still reconcile what is effectively their sales ledger using processes that are for the most part paper based.
While advisers will generally keep their accounting records on computer, the vast majority of the information concerning payments from insurers has to be entered into their systems manually. How many other industries can you think of where this would be tolerated?
There have, of course, been standards for the electronic transfer of commission information for the best part of 10 years and most life companies use them. The problem is many of these standards are optional. In reality, when given a specification to implement, any IT department will rightly look first at the items that are mandatory and how they can be accommodated. With the pressures IT departments are invariably under, once they have carried out the work deemed essential they can put a tick in the box and move on to the next thing they are no doubt under pressure to deliver.
The result is that for the life and pensions industry, we have an electronic commission payment system that does not fully replicate everything delivered on paper, so paper statements are still required. Where the majority of payments are of large indemnity initial commission, it could be argued the size of each transaction would be sufficient to justify manual reconciliation. In future, it is clear the industry will be increasingly remunerated by trail or fund-based commission, where payments would be over the lifetime of the investment.
The ability to recognise each individual payment generated by a client must be fundamental to an adviser's ability to understand the profitability of each customer. Certainly many firms are likely to want to show all such payments as one of their options in the menu approach. Unless the industry can move quickly to implement a system that will allow full automation of commission transactions, the cost of processing such small payments may make the menu approach uneconomic.
After the valiant efforts of Aifa to persuade regulators to accept a more appropriate approach to the way clients pay their advisers, it would be tragic if it were undermined by the inability of the industry to implement the necessary technology to process commissions in a cost-effective manner.
The fund supermarkets have come later to the marketplace and, for the most part, have made a far better job of implementing electronic commission payments. However, they are doing so in an entirely different way to life offices, so advisers need one system to process life company payments and another system for fund managers.
What is needed is a consistent approach from all organisations that make commission payments to advisers, making full use of technology and totally removing the need for paper. At a time when the industry is operating under thinner margins than ever, it is essential that something is done to remove the cancer of unnecessary commission processing costs.
Pam Mann is head of research at Financial Technology Research Centre
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