June 2010

Implications of RDR on business processes

The commission regulations of the Retail Distribution Review are just as important for those who don’t use the IFA channel as for those who do.

From the end of 2012 commission payments will be outlawed for products that are important to the portfolios of many Financial Mutuals. Those companies which are affected will inevitably have to make amendments to their processes and their IT systems. In the given timeframe it doesn’t seem to be an onerous task. The transition arrangements might prove interesting, with the details yet to be determined, but after that, we simply don’t pay commission where we did before. We no longer have to explain to an irate IFA the entries on the statement, especially the negative ones. What’s the problem? Well, it depends on what you do instead.

IFAs have a soft spot for commission. Not only the level of it, or whether it includes ‘renewal’ commission, but how it is paid; indemnified or otherwise, by direct transfer or cheque, how regularly, how reliably … A whole host of factors surrounding its payment and possible clawback. There are certainly other factors which contribute to an IFA’s perception of what a company is like to do business with, but all the things which make up the ‘commission experience’ create a powerful impression. In fact, if the choice is not definitively determined by the suitability of a particular product, some IFAs will even make a choice of the company to which they give business based on that commission experience.

So when commission payments cease, what will replace their influence on the IFA’s perception of your company? Where the product on offer does not indicate a clear favourite when it comes to the destination for an IFA’s business, what will become the determining factors?

The challenge for companies with a significant IFA channel is to determine what the IFAs want – what their ‘stakeholder expectations’ are – and to define them with empirical measures; which is nowhere near as easy as it sounds. They must be prioritised from the IFAs’ point of view, and each company must determine whether they intend to meet the expectations and the measures set against them, or seek to amend or even to eliminate them. Internal business processes must then be designed to ensure that the prioritised expectations are addressed in the most efficient way. Then those processes must be implemented. Only by doing that can the business which currently comes through the IFA channel be protected, and, if the project is completed professionally, increased.

Without pre-judging the outcome of the necessary analysis, it is certain that a subset of the expectations which will attract IFA business to your company will centre around the end-customer – the policyholder. By defining and addressing their expectations as well, you will not only maximise the satisfaction of the IFAs, but also those of your members, and of any business which comes through their word of mouth, and through the reputation of your company. Given that the optimum way of operating is to gather together similar expectations from different stakeholders, and then to address them all within the same business process, designed specifically for the purpose, this approach will give the best result possible for your company.

And if you don’t use IFAs to attract business, this is no time to regard your competitors with a slightly smug grin at their discomfiture. If they do take advantage of the new situation in the way recommended above – as some of them surely will – then they will be shifting the focus of their attention, in part, from addressing those expectations which only affected IFAs to those which affect potential policyholders. Your potential members. If you want them still to become your actual members, you have to follow exactly the same path. Unless you are convinced that your processes are as good as they can possibly be, and that the improvements which your competitors must inevitably make will have no effect on your business, then you also have to improve in order to maintain market performance, let alone to improve it.

Some of the improvements that are identified will involve organisational changes, maybe even cultural changes, and, not infrequently, IT changes. None of these happens overnight. The end of 2012 may seem a long way off, but it isn’t. There is certainly a competitive advantage in doing the work early; there is none in leaving it too late.

Phil Janes is principal consultant at the Arnold Consultancy, and has worked directly with Financial Mutual companies for the past 10 years.

Contact him on 020 8405 0281 or email

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