As full statutory regulation creeps ever closer the importance of technology will become paramount. However, after all the hype about how it would revolutionise the way we do business, there is still a long way to go before it can be considered indispensable when approaching statutory regulation.
Many are looking back at the ‘tech boom’ and wondering what the fuss was about. While an increasing number of advisers have learnt to surf the web, technology does not yet appear to have radically transformed the way the financial services industry does business. So was it all hot air, or are the benefits that technology could deliver just taking longer to achieve?
There is no doubt many people remain sceptical about the benefits technology can deliver, but that may have more to do with the fact that the technological solutions available to intermediaries are not as good as they could be.
For example, the develop- ment of electronic trading links between intermediaries, networks and providers is still an area crying out for greater investment and innovative thinking.
Online processing of applications needs to be fast and efficient and the internet offers the ideal medium for researching quotes, transacting business and conduct-ing compliance checks.
The savings generated and the improved service which advisers will be able to provide their clients will play an important role in helping many smaller intermediaries survive and compete in what is becoming an increasingly hostile business environment.
However, at the moment too many services currently available are simply online ‘brochureware.’ They promote new products and services, but are not transactional. Others allow a degree of online processing, but have gaps in them, making complete online processing almost impossible.
Intermediaries should beware of systems that require forms to be downloaded for offline processing. These are not ‘online processing systems’ because the system does not process applications ‘ they are simply computer systems covering a paper-based administration service. Other supposed online technologies are just collation systems, acquiring data, but once again not processing it. Behind the scenes, the information is downloaded on to paper before being processed by an unseen back office.
These types of systems will not provide the benefits which intermediaries need under regulation. The technology to offer a truly interactive online processing is available now, but to harness its potential requires significant investment and the adoption of a different way of thinking ‘ one which starts from the premise that any solution developed must address the needs of the intermediary not the technology provider.
With the onset of a new regulatory system for mortgages and the sale of other financial products, an immediate area where technology could provide much needed additional support, but at present is largely failing to do, is in the area of compliance.
At the moment, many networks only make sample compliance checks of between 5% and 10% of business submitted by IFAs. In an age where clients are no longer likely to simply accept they may have received poor advice and will take their grievance up with a regulator, or seek some other form of legal redress, there is a real need for a much higher percentage of cases to be analysed to ensure they are compliant.
This lack of compliance check-ing is already costing intermediaries money. For example, one major factor influencing the cost base of any IFA network is that of obtaining professional indemnity (PI) insurance. From an insurer’s point of a view, only checking 5% of cases is a high-risk approach and as a result this raises the cost of PI cover considerably. Needless to say, the networks simply pass this additional but unnecessary cost on to their members. Technology could easily help reduce costs here.
The increased demands of regulators also means intermediaries must be able to demonstrate any recommendation they make is based upon a thorough search of the market place and proper analysis of the characteristics of the products selected. There is a wide range of software available which will provide in-depth information on the products available and perhaps more importantly the small print associated with them.
Showing your wares
However, there is a sizeable obstacle in the way of technological growth in that some intermediaries claim they feel un- comfortable using technology in front of clients as it undermines their ‘expertise.’
This fear is unfounded. Show-ing a client you have invested in technology which can access large amounts of data should help complete sales not lose them. It provides a reassurance that the advice being offered is professional, comprehensive and objective.
Technology is undoubtedly capable of providing the solution to many of the most serious challenges faced by intermediaries, but unfortunately these solutions are expensive to develop and bring to the market.
As a result, the financial services market has got itself caught in a classic chicken and egg situation. Providers are not willing to make the investments which are necessary because, in their eyes, the projected financial returns are poor.
Over the next few years, the financial services industry will have to find the will to make the investment required. Our clients are moving on. They will expect much higher levels of service ‘ fast and efficient ‘ which can only be consistently provided through online processing.
The regulators will also expect it. The Sandler Report made it clear that end-to-end electronic processing should be the norm for all transactions. Sandler also indicated the industry needs to work harder on the development of standards and trading platforms to turn this aspiration into reality.
The internet holds the key to achieving the industry’s holy grail, namely significantly lower-ing the cost of doing business. In the 1% world we now live in, where all procuration fees are under pressure, conducting business via the internet is really the only viable means of eliminating a wide range of unnecessary costs. The bottom line is that those intermediaries, networks and providers that successfully reduce their cost base will survive and prosper, those that do not, will not.
The internet is helping to bridge a communications gap. Providers and networks are slowly conducting an increasing amount of their business electronically, and the technological advances the industry will have to make should sweep individual advisers and brokers along.
In many respects intermediaries will not need to worry about how the technology works, they will simply need to ensure they have joined the networks which offer the most reliable, cost-effective services. This will allow them to do what they do best, namely market products. The internet revolution will happen, but it is just taking a little bit longer than originally thought.
Junior Sobowale is chief executive of Virtual Net
Many supposed transactional sites are just online ˜brochureware’ ‘ in many cases information still needs to be printed off by the lender.
Technology will take on a key role with compliance as it can provide a record of everything brokers do.
Regulation will be the driving force behind technology providers finally developing systems in line with public perceptions.