14 May 2009 • moneymarketing.co.uk
IAN McKENNA
Switch pickings
With even the
briefest look
at the recent
round of
results from
life offices,
it is clear that
new business
levels are
currently being decimated. Against this
background, there could probably not
have been a worse time for the FSA
to focus on the rules around pension
switching. At a time when advisers are
at various stages of evolving their businesses
from sales-oriented to servicebased
to meet the challenges of RDR,
recent FSA activity could be seen as hampering
their ability to make such changes.
Personally, I disagree with such a view.
Historically, advisers have, with good
reason, complained of a lack of clarity
from the regulator. Certainly, no one can
complain that the FSA has not been clear
in what it is expecting now. Looking at the
historic level of charges that have been
applied by countless pension providers
in the past, especially those who are no
longer open for new business, there are
still ample opportunities to create real
arbitrage for clients in consolidating their
pensions to more competitive providers.
The FSA is making it very clear exactly
what it does and does not expect advisers
to do when recommending switches and
the justifications that will be accepted.
For example, I understand that the days
when a transfer could be justified simply
on the basis of wider investment choice
are long gone. Advisers need to be demon -
strating, among other things, that on
a like for like basis, they can achieve
real savings for the customer.
Such an approach will make software
systems such as Selectapension.com,
that can assist the adviser in clearly
analysing a client’s position and
documenting the basis, or their
recommendation supported by the
appropriate number crunching,
invaluable. In my view, any adviser
not using this type of package is just
asking for trouble.
The FSA crackdown will also help
promote greater transparency in the
platform market as providers in that
sector will need to be measured by exactly
the same benchmarks as traditional life
and pension providers if they are to be
considered for consolidation business.
Currently, few if any of the leading
platforms are accommodated on the
leading consolidation analysis software
packages and this is something that wrap
and platform providers must urgently
move to address if they are to maximise
their potential in this market.
In recent months, I have come across
increasing levels of evidence from adviser
firms that those providers which have
invested in true electronic new business
processes and full online switching are
benefiting from being able to process
the additional volumes of customer
transactions that are taking place, driven
E-COMMERCE | 3
PENSION ACCUMULATION WHAT WE LOOKED AT
I am hearing many
horror stories about
small specialist Sipp
providers being unable
to cope with these market
conditions. At a time
when markets can frequently
move by 2 per
cent either way in a day,
delays in execution can
take a lot of explaining
to clients. With the right
automation in place,
such risks can be avoided
by market volatility. One organisation
recently suggested to me that, but for
their online switching capability over the
last few months, they would have had
to have employed over 150 additional
administrators to handle the volume
of switches taking place by traditional
means. This must represent a huge saving
for the life company involved.
I am certainly coming across significant
anecdotal evidence that increasing
numbers of advisers are selecting Sipp
providers substantially because they are
confident that those providers can cope
with the volume of such transactions
efficiently. Such services are never going
to make up for an unnecessarily expensive
product but if the rest of the product is
right, the e-commerce can clinch the deal.
Conversely, I am hearing many horror
stories about small specialist Sipp
providers being unable to cope with
these market conditions. At a time when
markets can frequently move by 2 per cent
either way in a day, delays in execution
can take a lot of explaining to clients.
With the right automation in place, such
risks can be avoided.
Putting in place the necessary systems
is inevitably a deep-pockets game and this
will undoubtedly put pressure on the
small specialist Sipp providers. I know
many object to being compared with their
bigger, better-funded competitors but
from a risk management perspective there
must be serious questions that advisers
should ask before doing business with
Sipp providers who do not have the right
FSA: Making it very clear
exactly what it does
and does not expect
advisers to do when
recommending switches
and the justifications
that will be accepted
level of automation in place and reply
on paper, telephone or less than fully
automated e-commerce to process
transactions.
Increasingly, selecting the best provider
for clients and long-term business
partners for advisers’ business will be
about which organisations have the scale
to deliver competitive products and the
facilities to maintain high-quality service.
Advisers need to be looking forward in
their selection of providers to identify
those companies that will be able
to operate efficiently in a post-12/12
environment, where the cost of all activity
will have to be justified to the client.
Our view at F&TRC is that, based on
current plans, we believe there are only
four life offices we expect to be able to
meet the level of operational efficiency
advisers will need in the brave new world
and even those four need to substantially
improve their e-commerce over the next
three-and-a-half years.
Failure to choose the right providers
now could embed unsustainable cost for
the adviser business which can only be
mitigated by higher advice charges to
consumers in the future. Against this
background, it is more important than
ever to ensure that providers whose
products are being recommended today
have the e-commerce capability to
maximise efficient operations in the
future. As such, I believe the ratings in the
pages that follow provide a valuable guide
to identifying the best companies with
which to do business.
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