Page 1


An EXAXE  Whitepaper      





Profiting from  enforced  regulatory  change   Unit  5A  Sandyford  Business  Centre   Dublin  18     Ireland.    



Table of  Contents   EXECUTIVE  SUMMARY  











6 6   7  









Executive Summary      

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  

Automated services  

Larger Market  Share  

Focused products  

Fee managment  

  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  

Product Development  

QualiUication /  CPD   management  

Periodic Statements  

RDR Services   Loan   management  

Ad-­‐Hoc Statements  

Fee Accounting  



Agency Statements  

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.      

About Exaxe    


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.