Paul Donohoe, director of Swift Solutions, Sirius Financial Systems, tackles the huge task of identifying, costing and implementing adviser software
As if the lot of a financial adviser was not hard enough; these days it seems you also have to be a technology wizard.
The use of IT within financial adviser businesses is essential to achieve the efficiency and productivity firms need to make decent margins on fees and commission. However, while the functionality provided by adviser software solutions is important, businesses also need to consider three other factors in using technology effectively:
The cost of IT infrastructure.
The cost of IT management.
The hidden cost of IT.
The functionality provided by your software is primarily focused on reducing the amount of administrative effort needed to manage your key business activities. The expectation is that the use of software will enable less people within your business to process your current volumes of work or, hopefully, enable more business to be processed, keeping overheads as they are.
However, the savings achieved from such efficiencies can be easily wiped out if the true cost of operating your software is not taken into account.
All software needs hardware and communications technology to operate, in other words, infrastructure. Figure one (see page 19) shows the typical make-up of IT costs within a business. Research by Sirius into the costs of IT infrastructure for businesses with 10 users and turnover up to £3.5m per year, indicated that nearly £28,000pa was spent on IT infrastructure alone.
IT also needs people to understand it and manage it. When the cost of ensuring that IT is working as intended is taken into account, the true 'Total Cost of Ownership' (TCO) can far outstrip the original cost of the software licences.
In this article I will examine both the cost of infrastructure and management to illustrate ways in which adviser businesses need to look at the TCO when assessing and selecting technology for their businesses.
When buying an adviser software solution, one of the most underestimated costs is infrastructure. What does this mean?
Infrastructure is all the technology needed to operate the software. This is not simply limited to the laptop or desktop PC.
Connectivity between PCs and a main server requires the creation of a network. Increasingly businesses are now installing wireless networks - offering greater flexibility in the office configuration and less overheads in adding new computers to the network (as the need for cabling is removed).
Broadband internet access needs to be set up and configured to work with the adviser software exposing your IT environment to the internet and, therefore, possible malicious attacks from hackers or viruses. It is essential, therefore, that you should install a suitable firewall and anti-virus software.
But the extent of infrastructure doesn't end there. What about other software that you need to do your work? What about email? What about scanning paper documents to store electronic images of them for easy access?
In fact, the list of software solutions most adviser companies need runs into several pages when you consider accounting needs, adviser payments, financial planning calculators or tools and even your own website.
So, the cost of the actual adviser software is only a fraction of the total cost of setting up and operating a financial advisers IT environment.
Cost of IT management
The skills and knowledge required to ensure the correct and reliable IT infrastructure is in place and will work properly are in great demand and short supply.
In fact, the complexity of IT infrastructure has reached a point now where few IT people have the skills and experience to service all the areas needed - so many specialise. Most firms find themselves having to assemble the necessary services from a mix of in-house IT people and out-sourced services. As important as setting up your IT correctly, is the need to keep it operational. Typically, this involves a range of activities:
Fixing, repairing and updating hardware.
Maintaining the network and security.
Maintaining corporate data.
As more businesses now look to using mobile technology, such as Blackberry handhelds and laptops, the IT team have an even greater challenge on their hands as the technology is no longer present locally.
On top of this, your IT team will be constantly testing and checking that each change to your environment will be okay and will be answering questions from staff about how to use the technology.
The management of IT, even in a small adviser company, requires sought after skills, constant monitoring and proactive planning. Salaries for skilled IT people now outstrip administrative staff and even outsourced IT management services will cost at least £6,000 per year. However, the true of cost of IT cannot be measured simply in terms of infrastructure and people costs.
Read between the lines
The true cost of IT should also take into account - those additional, often overlooked expenses that are ancillary to the obvious costs of software, hardware, communications and IT staff.
One of the most shocking aspects of Sirius's research into IT costs was the discovery that 50% of businesses experienced network or server problems, resulting in the loss of productivity to the tune of one day every six weeks, equivalent to £2,500 in lost revenue and increased administrative workload.
Some of the common problems causing these outages were the impact of viruses, hardware failures and software upgrade problems. In many cases these were exacerbated by poor data back-up processes which meant loss of data was a contributing factor to the costs incurred.
It is clearly a concern for businesses to find that even with their investment in IT, poor management of the infrastructure can often undo much of the benefit achieved from this investment.
Any business that relies on technology for quality customer service and streamlined administration must ensure that proper management processes are in place. This means organising, implementing and monitoring active security and usage policies, capacity plans (assessing the strain on infrastructure as business volumes grow and standards develop) and disaster recovery plans (alternative access to IT should the infrastructure fail). These plans do require management time and attention and should be factored into all operational reviews.
There is now a reliable alternative to creating and managing your own infrastructure - to outsource IT.
One type of outsourcing approach is the 'Application Service Provider' (ASP) model. This is where a particular software application (such as your adviser software) is hosted by the software vendor themselves or their IT Data Centre partner. In this model, the ASP will install your software on their servers and look after all the issues relating to the set-up and management of the software. Access to the software is enabled via the internet connections - meaning staff can access the system from any internet-enabled PC.
So the ASP model not only reduces the risk and cost of managing the IT infrastructure for a key application within your business, but due to the internet access feature of the model, it also enables businesses to distribute or decentralise their operations - which can lead to significant savings in office overheads, staff salaries . For one Sirius client this has enabled them to outsource their entire commission processing unit to India for a total cost of under £12,000 per annum.
The evolution in outsourcing now takes the ASP model a step further and tackles the wider issue of managing the rest of a business's IT. Most businesses rely heavily on a range of other software to conduct business.
The 'Managed Service Provision' (MSP) approach hosts many other software applications and even mobile technologies, via the internet, and this will further reduce IT infrastructure management and costs. Significantly lower specification hardware is needed - and in many cases the cost of licensing other software. Sirius's MSP service is able to offer significant discounts negotiated on the cost of Microsoft Office applications, Exchange Server and SQL Server due to the volume purchasing it is able to leverage. Also, because many applications that need to communicate with one another will be co-located, it makes the inter-operability of the applications a lot faster and reliable.
The MSP model greatly reduces the need for in-house or third-party IT infrastructure support and it set to become a significant trend among financial services businesses.
Which way now?
Clearly, the next potential evolution of IT outsourcing is full administrative outsourcing. The full, end to end 'business process outsourcing' (BPO) proposition is a concept now being considered by Thinc Destini in conjunction with Capita, who recently bought Quay Software and are developing the service.
It remains to be seen whether adviser businesses are ready to go the whole way and hand over responsibility for not only the IT infrastructure but also all the people and processes involved in adviser business administration. However, what is clear is that getting IT right is now top of the agenda in adviser businesses of all sizes and the trend to outsource IT is well underway and delivering the much heralded benefits of technology.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress