Technology plays a critical role in modern advice businesses but, argues Tim Sargisson, disconnected systems are letting financial advisers down
It is 25 years since Connected by the Stereo MC's reached number 18 in the UK singles chart with its plaintive cry about how ‘something ain't right, I'm gonna get myself connected'. However, it seems the message has fallen on deaf ears for many in adviserland.
Not for the first time I am indebted to Mark Polson and the excellent the lang cat for a first-class piece of research to illustrate the point. Called ‘A Disconnected World' it is about the impact of systems not integrating properly on adviser businesses.
The conclusion is that money put into integrations has been wasted. Where integration does exist they are often not being used, and are untrusted, with firms deciding it is better simply to do the work themselves. The number of real-time two-way integrations firms enjoy in the lang cat's sample is a big fat zero.
I am certain that anyone reading A Disconnected World must recognise the critical role that technology plays in supporting any efficient, well-run and profitable advice business.
In a 21st century advice business the focus is on helping advisers fully optimise their time in the achievement of business goals, best outcomes for their clients, personal fulfilment and the personal enjoyment gained from being a professional financial adviser. This simply cannot be achieved without a significant investment in leading edge technology.
The requirements for client reviews have ramped up and are posing a major challenge for firms. In the post-Mifid world firms need to do a full suitability assessment - fact finding, risk profiling and suitability reporting. To have not effectively invested the time, money and resources to provide the ability to deliver this efficiently through an industrialised process is going to cost firms.
This view is supported by research by bespoke paraplanning service, The Timebank, which estimates the cost to advisers of completing just a basic annual review is now running at £750 and ranges from £600 to £1,100 for firms where The Timebank asked them to break down the cost. Clive Waller at CWC research has the figure even higher at an eye-watering £1,500.
For adviser firms to spend six hours to produce a single, compliant client report represents a shocking waste of a firm's time and resources.
Why are we seeing this? I believe there are three key reasons:
- The FCA identify that, out of 5,246 financial adviser firms, 4,676 firms (89%) have between 1-5 advisers. The clue is in the firm's description. These are financial advice firms; they are not technology experts. Reacting to a constant stream of client enquiries leaves little opportunities to proactively devise a strategy around embracing technology.
Advice firms buying lots of different kit (the lLang Cat research highlights seven as the number of systems a firm typically uses to deliver planning, including two platforms) helps to explain why it ends up as a hotchpotch of different systems all operating in their own little universe with no connectivity.
- Both Octopus and Liberatum have identified large numbers of advisers looking to retire in the next five to 10 years. Are you really going to shell out large wads of cash on a super shiny bit of kit, when along comes a buyer who is only interested in your clients and AUA? Indeed, as part of the acquisition they will employ a team to upload all your clients on to their back-office system.
- The third point is eloquently explained by Mark Polson as a significant reason behind this stasis. "What's happening is that the industry (as opposed to the adviser profession) is being given a free pass by an army of administrators, who are acting as a sort of filter between the industry and hard reality. Why spend millions sorting this out when Sarah or Dave, paid £25k a year, will do it for you in the adviser office?"
However, whatever the reason or excuse, efficiency is essential to deliver what is demanded and what is expected of us by clients and the regulator: the aim to achieve better customer engagement and improved customer outcomes.
Tim Sargisson is
Our weekly heads-up for advisers
The Financial Services Compensation Scheme (FSCS) declared 11 adviser firms in default between 1 August and 31 October.