An EXAXE Whitepaper
R D R
Profiting from enforced regulatory change Unit 5A Sandyford Business Centre Dublin 18 Ireland.
Table of Contents EXECUTIVE SUMMARY
NEW APPROACH TO CHANGE
NEW ROLE FOR PROVIDERS
THREE KEY STEPS
RATIONALISE DEFINE REVITALISE
6 6 7
ABOUT THE AUTHOR
The start date for RDR is creeping up on us. In less than 2 years, all commission will be banned for investment products and providers will need to support adviser charges if they wish to remain in the market. All providers have been compelled to initiate expensive projects for the introduction of the new regulations. But what tangible benefits are they getting for this expenditure? Is it just a case of doing the minimum to achieve compliance or is the opportunity being taken to streamline the business processes and systems to make the company flexible and responsive in the dynamic post-‐RDR world, with its continued regulation creep? These questions should be to the forefront of the mind of anyone involved in the preparations for RDR compliance. In too many cases, a minimalist approach is being taken – a sticking plaster to cover the wounds of inefficient, disparate systems that cannot provide coherent support for the distribution channels into the future. RDR provides the perfect opportunity to improve creaking areas of the business, which have suffered from neglect over the years. The number of IFAs will undoubtedly fall dramatically, due to the changes in qualifications needed and the absence of grandfathering. Many of the products currently on sale are no longer suitable and will be retired rather than refashioned for the new era. These reductions both in the size and makeup of the distribution market and the removal of older products from the providers’ offering make it the perfect time to streamline systems and processes in order to be in a position to grow dynamically post RDR. A more defined set of products supported by streamlined and efficient processes will provide a compelling answer to the question of why IFAs should recommend a particular provider’s products as the solution to their customers’ financial requirements. This enables providers to efficiently assume their new roles as product and service providers to an advice-‐led industry or as direct retailers to the larger consumer market now outside the advice arena. Leveraging the work mandated by the FSA for RDR to improve your products and services will maximise your return on your spend and position your company to be a profitable player in the emerging post-‐RDR world.
RDR radically changes the role of the provider from that of a product supplier to IFAs to a supplier of products to consumers and services to support advice- driven sales.
The FSA’s Retail Distribution Review is going to significantly alter the current approach to the sale and distribution of investment products. In particular, the changes banning commissions and mandating adviser fees as part of an agreed contract with the customer will force major changes to the advisory management processes within provider organisations. This will require a major expenditure for providers in order to change what up to now has been a stable and settled area of the infrastructure. For many organisations, this will be a big headache as there will be myriad changes to be made to the multiple back office, front office and adviser management and payment systems that have grown up over time throughout the organisations. In particular, the level of M&A activity in the Life and Pensions industry in the past decade will have resulted in disparate systems being acquired as part of the deal. Mostly, these systems were just kept separate but the costs of procrastination on the centralising of these systems are now about to come home to roost. Compliance with the RDR regulations will mean that all systems, other than those housing closed books, will have to be upgraded to apply the regulations. For companies with multiple systems, this cost will increase linearly.
New approach to change This whitepaper recommends an approach that should be taken by all providers when planning their response to the RDR – to see it as an opportunity to enhance the current distribution process and thus maximise the return they are getting from their spend across their distribution channels. In essence, it calls for providers to look at the RDR as a wake-‐up call to the dramatic changes that are about to happen, to see their role changing to the same extent that the advisers’ role is changing, and to shape their systems and processes to create an advantage in the new post-‐RDR world.
Current environment configurations have disparate systems which all have to be amended to achieve compliance.
New Role for Providers
RDR will change the role of providers. No longer able to tout for business from advisers based on their service and remuneration to the provider, they must look at providing keenly priced and attractive products to the end-‐ consumer and at becoming enablers to their distribution channels to allow them to move to the advice-‐based sales approach that is now mandated from the regulator. This realisation shows that what is required is a strategic approach to RDR, rather than a tactical one. Providers need to assess how far their current organisation is from the type of organisation that is required to fulfil the new role.
Three Key Steps
New processes to support new demands
Existing Products and Systems
Providers need an active strategy to prepare them for competition in a new marketplace. This will involve a number of key steps:
Revitalise business model
1. Rationalising existing products and systems to remove those that are no longer appropriate 2. Defining new products and procedures to support the advice-‐centric model of investment purchase
3. Revitalising their business model to support sophisticated advice-‐led sales and the larger mass market of those outside the advice arena.
This includes defining new calculation, illustrations and projections to support products in the post-‐RDR world.
The way forward Rationalise Many organisations have multiple agency systems administering their IFA base, tied agencies and direct sales forces with the concomitant issues of maintenance and risk of error or fraud. The primary issue preventing the streamlining of such systems is the associated cost. Now that RDR is mandating major changes in the area of adviser management and payment, investment has to be made and this provides a perfect opportunity to rationalise the number of agency and commission systems by migrating to a single solution, either an existing one or by purchasing a new one, which will be able to administer the IFA base in the new world. It is generally accepted that the advent of RDR will reduce the number of IFAs by at least 20% and the need for better services for the remaining IFAs and this adds to the benefit of the move. Similarly, the number of products currently being sold by many organisations is excessive. Before starting to adapt them all to be compliant for sale in the advice world, this is an excellent time to assess the products that a company wishes to sell and to close to new business those which are not sufficiently profitable or are aimed at a non-‐core market of the company. Providers need to address the multiple systems currently supporting the definition, illustration and projection of new and existing products. A more tightly-‐focused product range will be far easier to market to the more segmented adviser base and will be easier to maintain and adapt going forward, as the regulatory rules are adjusted post implementation. This is likely to be frequent as the FSA’s outcome-‐based regulatory approach is predicated on empirical observation of results and constant adjustments based on these.
Define The management of distribution channels is a major overhead in most provider organisations. As IFAs develop a more professional method of operation, their needs will become more sophisticated, causing further work in order to support them. In the post-‐RDR world, consumers will be more aware of the advice cost. As a result they will be more demanding in their expectations of the IFA’s service, increasing the demands on the providers. Providers who wish to gain market share need to be able to support the higher demand levels for service from the IFAs. To provide this support,
Service levels required post RDR will be more sophisticated than those at present and they will be needed in real-time
without dramatically increasing costs, providers need to examine their current approach to supporting intermediaries. The aim must be to define services that will deliver to the IFAs the capability to provide advice to their customer base, which is what they are now solely getting paid for. This means efficient access to fund and product information, product illustrations with fee variations, tax efficiency comparisons etc. These services should be automated as far as possible to enable all distribution channels to efficiently self-‐service, thus reducing costs while increasing support. Real-‐time provision of services, whether sales-‐focused or administrative, will support increased sales via all distribution channels while reducing provider costs – the holy grail of product providers in all markets.
The number of product providers is also likely to dwindle over the coming years, as a number of large players have decided to close their books and focus their new business acquisition outside of Europe. With a slimmed down set of products that are more appropriate to the market and more streamlined automated services, those providers still in the market will now be in a position to gain market share by focusing on supporting the newer, more financially sophisticated customers who will now be looking for products. Rather than just reacting to channel demands, providers can proactively engage with the channels to focus their offerings on the most promising sectors. Don’t forget, value is not only a price mechanism and advisers will be looking to recommend products from providers whose ongoing service capability, including illustrations and projections, will be of sufficient quality to enable the customers and the advisers to best understand the value of the investments and the correct changes to make at any ti More proUitable customers
Larger Market Share
Given the generally perceived poor service levels provided over the years by life companies, being able to offer dynamic new services and support for investment products will be a key differentiator for a provider in the more sophisticated advised investment market that is about to emerge.
A refocusing of strategy on a better-segmented marketplace will revitalise a company’s presence and market share.
RDR Plus Exaxe’s RDR Plus is a suite of services and components that allow providers to achieve RDR compliance, either by replacing their existing systems or by using Exaxe’s services to augment their existing back and front office systems. RDR Plus comprises specific services for the capture, storage and amendment of fee agreements between sales agents and consumers. The agreements can be defaulted from standard fee lists either by agencies or for direct sales forces or tied agents. These agreement services can be used across the entire lifecycle, from initial quotation and illustration through policy initiation and servicing to claims processing.
New Business Illustrations Existing Business Quotations
QualiUication / CPD management
RDR Services Loan management
RDR Plus services cover areas such as Fee Accounting, New Business Illustrations, Agent statements etc., which provides full compliance for providers. It allows the combination of fee handling with traditional commission handling while flexibly permitting separation of both for billing or MIS purposes as required, giving providers the ability to provide their channels with split or combined payments and statements as required. RDR Plus’s service-‐centric architecture provides dynamic process modelling capability. This allows providers to enable efficient and flexible business processes varying across distributors and distribution channels based on need. All RDR Plus services are secure and have a complete audit trail. Services can be utilised enterprise wide or can be made available to external systems and portals. Exaxe’s RDR Plus provides the complete RDR solution, allowing providers to pick the level of service they require to enhance their current enterprise environment and to maximise their ability to exploit the new post-‐RDR market.
RDR can be seen as a drag on a company; a regulatory driven spend that achieves nothing in terms of strategic focus or operational efficiency. But it doesn’t have to be that way. The coming-‐into-‐force of the RDR rules is the perfect opportunity for providers to refocus their energies across all their distribution channels, fine-‐tuning the products and services provided to supply niche products and services to cater for the higher advice levels being given to investors. By increasing the use of automated solutions, providers can leverage their spend to improve the attractiveness of their products and services, both key components in helping any seller to recommend a particular product. Providers need to focus on getting strategic value for their regulatory spend and, by doing; they can increase their market share and their profitability. Understanding their new role will give providers insight into the types of products, systems and processes they will need post 2012. They need to resist the urge to take a minimalist approach, particularly since the regulators – UK and European – seem hell-‐bent on increasing the workload and forcing providers back again and again to make changes. Streamlining systems will reduce the overhead of current and future regulatory changes and the changes that will result from a market that will be significantly altered by the new rules. Exaxe can help maximise the return on providers’ investments by supplying new RDR-‐compliant services to support providers making strategic changes to their organisation. Exaxe’s services allow the integration of providers’ processes with external distribution architectures, giving flexibility and reach to the providers product and service range. Service-‐ driven functionality allows providers to reconfigure processes so that they can react rapidly to future regulation and market changes. Exaxe’s RDR Plus will provide the one-‐stop-‐shop solution for a provider looking to compete either in the more affluent advice-‐led market or in the volume, non-‐advised market.
Exaxe’s RDR compliant solutions enable rapid deployment of new products and services across the providers distribution channel range.
About the author
Tom is Chief Operation Officer of Exaxe with primary responsibility for overseeing product development. Tom has extensive experience of managing web-‐‑based insurance software from conceptual design through to commercial release and beyond. Tom has been leading the development of the Exaxe Internet insurance architecture since August 1999.
Established in 1997, Exaxe helps Life and Pensions companies launch new products faster, administer post retirement products more efficiently and respond with greater flexibility to the marketplace. With offices in Ireland and the Netherlands, we provide leading edge; front, middle and back office solutions specifically for life and pensions. Exaxe'ʹs component based solutions more effectively manage; product development, quotations and illustrations, channel distribution and commissions management, administration, etc. They are proven and are in use in a wide range of client organisations. “Exaxe” is a registered business name of Exaxe Limited, company registration number 222246 Registered Office: The Concourse Building, Beacon Court, Sandyford, Dublin 18.