Our November Investment Forum focused on Platform to Platform Re-Registration and featured expert speakers Billy Burnside from Criterion, Douglas Boyce from HubWise, and Peter O’Connell from Focus Solutions. This is the first post relaying key information about the STAR Initiative, it’s development and how it could effect the industry.
Criterion are involved in an initiative called STAR which will be my main focus today.
I’m Billy Burnside from Criterion Tech, and we provide many of the standards for the transactions that underpin a lot of the interactions in the industry between advisers using software services, product providers, platforms. I’m here today with a slightly different hat on, in that Criterion are also involved at an industry level through an initiative called STAR, an industry wide initiative seeking to address some of the challenges around transfers and registrations. That’ll be the priority focus today, but I’m happy to talk about anything that Criterion does.
My customers tend to have hundreds of advisers so we see the effects of these topics.
I’m Peter O’Connell and I’m head of enterprise development for Focus Solutions and I’ve been in the company around nine years, transitioning through propositions, products, and into business development. If you haven’t heard of Focus, we’re a wholly owned subsidiary of Standard Life, acquired in 2011. I work with our enterprise-class clients. So my customers typically will have hundreds of advisers and so we see the pain of the topics we’re talking about today.
What are the benefits for advisors and consumers in accelerating platforms and platform reregistration?
STAR’s objective is to help the industry improve processes around transfers/registration and addressing poor communication to customers around the process and expectations they should have for it.
I guess a couple of points, some sort of generic benefits are probably pretty obvious around, greater certainty around the process of transfers and reregistration and ultimately improved speed of transfer of assets. From an adviser point of view, if we can improve this process, fewer queries that advisers have to raise and lower admin costs, hopefully as a result of that. And then I guess ultimately from a customer point of view, greater control over their own money.
These areas were key to the FCAs investment platform market study back in 2017, where they set out to make transfers simpler, and focused on primarily the portability of investments, as they see that as a way of driving competition and ultimately increasing choice for customers. The challenges around transfers and reregistration resulted in the FCA meeting with 10 industry bodies like the IA, ABI, et cetera, and STAR was born.
Its objective isn’t to provide solutions in this space, but it is to help the industry improve processes around transfers and reregistration. Part of that is also around addressing what is perceived as poor communication to customers around transfers and reregistration and a lack of realistic expectation setting for customers as well.
The key for this is doing it electronically and automating everything as much as possible, as well as setting expectations for the customer and giving them peace of mind.
I think the key for us really as a software product provider is how we can do all of this online electronically. And when we get to that stage, not only does it expedite the transfers, but it reduces things like fraud and there’s been a lot in the press about scams. I think not just the expedition of it, as far as we can automate these things, the better, really.
And interestingly, they’ve got pension transfer myself earlier this year and expected to conclude really quite rapidly after five weeks and I hadn’t heard a dickey bird. And it was as simple as, “Oh, we haven’t started processing yet, Pete give us another week”.
So I think when we do get all of this resolved there’s that aspect to it as well. And I don’t kind of try to cover some of this in terms of service levels, but actually just setting, I think you’ve just touched on it, setting the customer’s expectations early on, you know? So from the consumer point of view, I think we’re all on the same page, really.
It’s just giving a lot peace of mind, really, from a consumer’s point of view. It’s quite a big deal if you’re transferring a significant pension board. So helping the consumer, get that peace of mind by them knowing that they’re not going to get scammed, things are going to happen quickly. I think we’re going in the right direction, though.
It’s important to measure the end to end process from a customer’s perspective. Star has a very large scope but lots of support and we have agreement on the process and SLA measures. The adoption of smaller firms has been a challenge but we’re hoping that STAR will help by providing transparency as to how things compare to SLA measures.
I will answer Doug’s nice challenge on Star in a second. But, if I maybe go back to some of those solutions that Doug, referenced like, Calastone and Altus, there is the Origo transfer services as well, which predominantly deals with cash pension transfers. They have been publishing data on this for a good few years now, which is very much taken from a ceding provider perspective. I think what’s important is to measure the end to end process from a customer point of view, because without knowing that it’s really difficult to go back to that key point around setting customer expectations.
So, I think Star has its challenges. It is trying to cover all product sets. So, GIA and ISAs, individual pensions, occupational pensions, and the asset manager and transfer agents. So the scope is large, but thankfully we have been able to gather quite a lot of support across all of those different areas with regards to product providers, platforms, asset managers, transfer agents, et cetera.
We’ve made good progress on agreeing what the process should be and the SLA measures for them. The key step in mapping the transfer and reregistration process across all of those different categories is the ultimate exercise in herding cats, I must say, because to get agreement on that is one thing, to get agreement on what the SLA should be for each of those steps is quite a different challenge, which we have recently landed.
So the challenges that came out of that were very much while you’ve got existing, efficient technology driven processes from Altus, Calastone and Origo as I’ve said, the adoption by some of the smaller firms, and in particular, some occupational pension providers provides a particular challenge.
If you think of the average portfolio that customers are invested in, on the platform, it will have anywhere between, eight or fifteen different assets, and that re-registration will only go at the rate of the slowest asset manager. So that in itself provides a challenge which hopefully STAR will provide some transparency to because each step will be measured and each participant will be measured against the expected SLA.
And those measurements will allow advisers and customers a to see who performs well against those SLAs and conversely who doesn’t, but also allow platforms to set more realistic expectations around what they can expect to see as they start that transfer journey.
What’s separating STAR from past initiatives?
The level of engagement with STAR has been impressive. The FCA is expecting improvements when they revisit STAR in 2022. This will be the first time advisers and consumers will see how individual organizations perform and help the industry to see new opportunities.
I think the level of engagement we’ve had to date with Star has been pretty good. We have over 70 different organizations signed up to join it. I see the level of engagements being pretty impressive.
One of the consequences is if we don’t deliver the right outcomes that the FCA are after under STAR they’ve been very clear that when they revisit this, and they have said they’ll revisit it in 2022, that won’t be a progress update, it is a revisit to assess the impact that Star has had as an industry initiative. So they’re expecting to see improvements that probably for the first time in the industry will be measurable due to the MI that STAR will be collecting from all the different participants and publishing from an industry point of view.
Like I said before, while we’ve had some information shared from Origo for pension cash transfers, this’ll be the first time that advisers and customers will see how individual organizations perform for GIA/ISA transfers, individual pensions, SIPPs, et cetera. That will help the industry identify where opportunities may arise to adopt more technology to improve transfers as, logically, electronic transfers are processed more efficiently than manual.
I think that’s accepted, but the adoption of those services, like I said can be piecemeal, particularly on some of the smaller fund managers, and where fund managers have TAs they have a tendency to look to the TAs to solve those problems, yet it’ll be the fund manager that’s accredited under STAR and measured under STAR, not the TA. So that will hopefully bring more [Fund Managers] to the table, to join the initiative and to invest in the electronic services, their own internal processes and how their own systems integrate and work more efficiently with their own workflow, for example.
So there’s no magic sauce. It is about getting the industry to rally around an initiative, support the initiative and be transparent in what they’re reporting, because the consequences of not doing achieving this is the FCA will introduce regulation.
How will this impact/help suitability?
There’s no silver bullet really. The two sides that are causing pain for the advice firms are automating the production of advice itself and the reporting site. For transfers we want straight-through processing, everything online. Developing solutions for the most common scenarios would be helpful.
I noted, Ian, at the beginning that you said you didn’t want the panelists to speak too much. And then you ask a question like how do you automate the production of suitability? But effectively one of the contexts for this session, was around replacement business assessment, justification, and review. And I suppose the transfer is only one part of this because it’s going to be setting typically in a broader context or for example, retirement planning. So the suitability, isn’t just going to be looking at moving from A to B.
So if you’re looking at some later retirement planning, the customer can ask specific goals, you’re going to talk about income sustainability sequence and risk, longevity risk, assuming they’ve got a DC schemes one or more. So what I wanted to do is kind of set, set the scene, and then at the end, I’ll talk about what we might consider, but I think the starting point is that we’re trying to aim for a hundred percent of automation, then we’re just going to fail it, it’s a little bit like trying to boil the ocean. So there’s no silver bullet really.
Given that, then I think there’s now a look on what we need to think about automating. And I can split this in my thinking into two pieces, really. One is automating the production of the advice itself, the recommendations, and then the other one that is the reporting site. And the reason I raise these two things is because this is where the pain is, as I understand it really for the advice firms I work with and I’d be keen to get a bit of feedback from the forum really, and whether this is typical.
So if you think about what you’re trying to automate, just talking about the process itself, you’ve got the informing and educating the customer, driving them to action, the disclosure, fact finding, understand the life stage and the situation, you’ve got a risk profile, you’ve established all the goals or the priorities, maybe need to do some kind of financial health check, all that prep stuff you can get the customer to do. So with some good customer experience tools, some digital kit, you can probably do that. And if you’ve got all that information, potentially you could throw it at some kind of algorithmic or cashflow and tax modeling engine and then you get a set of generic recommendations. So nothing provider or product specific.
Then you get into, well, the customers currently go out and you’ve got the base and investment proposition itself that you’re trying to sell to the customer. That’s where it gets complex. That kind of data gathering, research and analysis, the recommendations, that’s where a lot of advisers really spend all their time. And the area the client values least. What the client is interested in is the relationship management, the presentation, and so on so forth for the reviews.
So automating that is starting to get quite complex when you start to look at the detail of what the customer has versus what they’ve got. We build a simple proof of concept around trying to do that genetic piece, using our own kind of modeling engines. And mid-January saw a lot of interest, but as we go, we got a lot of feedback on, “actually, could you help us do like the thick optioning, research analysis, production and recommendations quicker? Can we get that sorted first?” And in the context of the transfers, we want straight-through processing. We want everything done online.
So I think we’re getting there. I think the automation will come, but there are other things we need to resolve first, such as the work that STAR is doing, getting everything online. When I did my pension transfer, I had to physically sign 13 different documents which is nuts. And of course they’re going to different places. The second piece really is around the production of suitability report, and I know this is a huge pain for everybody. And some firms may spend a few hours. Some firms may spend, a day plus trying to produce the suitability report. And it’s not really a technology issue because we’ve got the technology to do it, we can automate the production of a suitability report.
What the challenge is, is getting the data together to plumb into it. And there’s a huge amount of data. So if you think of MiFID2 stuff and the ex-ante charges, you’ve got to get in there, the before and after situation. You’ve got the advice charge as a platform, the product, the fund charges, you could weave this all together into some kind of a meaningful statement for the customer so they understand what it is that you’re recommending. So I think that’s another difficult area, really. So coming on to my kind of conclusion, really, I don’t think we can do it a hundred percent as I said, it’s boiling the ocean.
But what we do is identify the most common scenarios industry, what you submit in mass market mass affluent. Try and agree best practices, advice for those types of scenarios, develop some kind of algorithm or modeling approach to drive a generic solution. So provider and product agnostic, maybe you work in 360 services and some activities to develop a prototype. Go through a calibration process of the prototype against real world examples so we know actually it works.
And then I think then one of the other difficulties is working with the likes of a financial express or royal n, and to see what could we do to actually help expedite the research part of the process. If somebody comes to you before for pension schemes and you’re looking at consolidation and you’ve got a whole bunch of research to do, that’s painful. So I would take a simple approach to start with, build on that, take an evolutionary approach and take a launch and learn approach with that.
And then finally, the last thing I’d look at, I’ve identified some new scenarios that may solve some industry problems. So there’s 9.2 million people in the UK for 695 billion of assets, not receiving advice, either because they don’t think they can afford it or because they don’t think its relevant. Cash deposits are up 50% since COVID started. So we could look at scenarios there, we can start to introduce automation. But I think it is a collaborative approach. So I’d be really keen to see what the advice firms on the forum think.
What do we need to achieve to take things forward?
We need everyone to participate and provide MI so we can get the consistency we need. We’re also accrediting organizations against SLAs and checking total book for each organization.
It’s sort of goes back to the key challenge around Star, and certainly from our perspective, which is we need all the participants in the industry supporting this and providing the MI so that there is consistency of how we’re measuring. And the other thing we need, and I think it was touched on before, maybe in a slightly different context, which was around transparency. One of the things we were very conscious of, and it might go to the heart of Doug’s unease or suspicion of Star, which is we will be watching and monitoring closely the data that is submitted, as I’m sure the regulator will as well around anybody that’s potentially gaming it.
Star is not just taking provider’s MI and reporting discrete performance against it, we will also accredit organizations against the SLAs. If they perform well against the SLAs, they’ll get a gold accreditation, et cetera. What we want to avoid is organizations reporting a subset of their back book, for example, that they may have invested in and performed pretty well because it’s all electronically driven. So we will be checking, the total book, for each of the organizations involved, the percentage of total transfers that they’re reporting, as there’s no point just reporting the ones that have gone through well. So transparency’s key to achieve that consistency when we’re measuring the industry and setting these bars, because ultimately once we get through one or two cycles of accreditation, the expectation is that the bar will be raised so you see that continual improvement.