Back-office moves to front of mind

A spin-off from the general drop in investment performance this year will be a drop in adviser’s income. It will mean that they will have to get smarter at running their businesses to maintain profitability and more will be looking at outsourcing their back-office operations to reduce costs.

In this environment, back-office suppliers are sensing an upturn in business and are responding by launching more sophisticated products in the next few months after a period of relative quiet in the growth of back-office services.

Gone are the days of simply selling a platform, handing over a CD-ROM and — a few hours later — the adviser has a back-office system.

New products will now come as part of a range of services to support advisers and help them become better business practitioners.

Norwich Union group director for distribution Allan Griffiths says his company has found a lot of advisers are looking to cut their overheads and outsourcing the back-office has become a growing priority in terms of saving money but also for finding the best back-office deal.

“Our future back-office product will work just like a master fund. We will source suppliers of services, which will be bought at a bulk cost due to the volume of business,” Griffiths says.

As a result of this bulk-buying deal, he says the group plans to pass on the lower costs to advisers and will include services in the areas of compliance, software, education tools, human resources (HR) and marketing support.

“There is a danger that some small dealer groups will disappear because they don’t have the efficiencies to survive, but through the delivery of tangible support services — such as HR — back-office service providers can make sure they don’t disappear,” he says.

Griffiths says Norwich, like other back-office service providers, aims to offer support services that employees of large corporations take for granted, such as marketing, public relations and IT specialists, to small and medium-sized dealer groups.

But he says the key add-on back-office service, professional indemnity (PI) cover is still 12 months away.

“We are currently helping people through the process of getting PI cover and have found that often the problem has been that not enough time was spent on writing the proposal to give to the underwriter.”

Norwich has looked at the PI industry for the past 50 years and has found the rationalisation process occurs over and over again.

When the industry cuts back after oversupply, the ‘crisis’ in the lack of underwriters lasts about three years before players return to the market.

“We are in year one of this ‘crisis’, however, we have been talking to overseas underwriters to work out a defined process for providing PI cover,” Griffiths says.

Sealcorp is also in the process of changing its back-office services and while its Wealthpoint online practice management system has been on offer to advisers for some time, the system has also been taken up by a number of dealer groups.

However, the offering has more to do with providing financial solutions. The national manager for dealer group services Paul Robertson says the company is now offering training and monitoring services in an attempt to lift the business practices of a dealer group and the principals.

Sealcorp has always offered technical support for advisers using its platforms, but recently it has increased the number of specialists focusing on specific areas such as taxation, social services or superannuation.

Robertson also says that paraplanning has been a particular growth area in outsourced services.

However, he admits the adviser take-up of these services is not as great as Sealcorp would like, with advisers tending to say that third-party back-office people cannot add value to their business.

In a bid to ensure that their back-office service offering is useful to planners, the group kicked off a business development program for larger dealer groups.

This program runs over two years and has five modules designed to improve the operating procedures of a practice covering HR management, systems and procedures, and strategic planning.

Those working through the program are able to benchmark their businesses against others and Robertson says this delivers a list of priorities that are needed to improve the efficiency of that practice.

“The participants work through the modules identifying changes and implementing them, and at the end of the two-year period, there are usually 15 to 20 major changes that are made to the business.”

Reinforcing the trend to creating wider ranging back-office services, AXA has launched its own service titled Jigsaw Support Services, which is based on a core of services offered in a standard package. These include compliance, technical services, approved product lists and a remuneration system.

However, Jigsaw has split the level of services with those offered at an extra cost including specialist training, product research, access to financial planning software and paraplanning.

The services have been built as part of the group’s support provided to AXA’s in-house dealer groups, but is now available to third party advisers.

Even with all the added features, back-office outsourcing services are not new and over the years service providers have launched many innovations that have sunk without trace.

Robertson admits the take-up of Sealcorp’s business training program is struggling.

“The adviser needs to make a commitment in time and money over two years. Too many advisers work in isolation, so cannot see the benefits of improving the operation of their business,” he says, but does admit there are two areas that advisers value — compliance and investment research.

Griffiths says one thing the back-office providers have got wrong is making the platforms too sophisticated.

“Advisers are time-poor and they haven’t got time to read a huge manual. They want a basic tool they can use.”

This is a lesson Norwich learned the hard way after its PlanIT platform was withdrawn due to the complexity of the system. It is believed the revised version will be a lot simpler to use and more reliable.

Back-office outsourcing for financial planners looks like becoming a hotly contested area in the next few years, as suppliers try to woo the adviser to use their system by offering more and more services.