Written by Scott Phillips, CEO of The Pension Lab
Amidst the ongoing discourse surrounding the Letter of Authority (LoA) process, it’s evident that despite ample research and grievances voiced, little has changed. Yet, change remains imperative. To catalyse this transformation, our sector needs a cost/benefit analysis.
In collaboration with industry stakeholders, we’re working towards quantifying the numbers of LoAs coursing through our systems and processes to discern their impact on our time, environment and overall costs. At this early stage of data gathering, I can share a spectrum of additional indirect costs associated uncovered so far with the LoA process from the adviser’s perspective.
Client Onboarding Delays:
Client onboarding delays, ranging from 3 to 12+ weeks, and sometimes even longer, result in numerous adverse effects for both advisers and clients, including emotional distress. According to research from NextWealth (FABB Report – 2021), the average cost to onboard a new client stands at £1,543, taking an average of 2 to 4 weeks — a process that ideally could be completed within 48 hours of initial contact, aligning with consumer expectations in other financial services sectors like banking. The primary bottleneck, identified by 72% of advisers, lies in waiting for client data to be returned from policy providers—a delay beyond the control of advice firms.
Aged Requests and Outdated Signatures:
Delays in the LoA process cause ripple effects, leading to aged requests and restarts, amplifying inefficiencies. Some providers require outdated wet signatures, complicating matters further. NextWealth’s research found that as of March 2021, 42% of financial advisers used eSignatures, partly due to the pandemic. However, anecdotal evidence suggests a reversal post-pandemic, citing a return to traditional paper and post methods. Insistence on wet signatures is also driving up paper-based procedures, posing challenges like increased security risks and time consumption. This backtracking not only hinders progress but also worsens environmental impact and risks, underscoring the need for digital evolution.
Security and Data Rekeying Risks:
The mounting concerns over cybersecurity and data theft significantly impact the client onboarding process, casting doubt on the security of sensitive information exchanged during Letter of Authority (LoA) procedures. Advice firms face formidable challenges due to diverse submission formats, from portals to secure emails or traditional postal methods.
Adding to these challenges, some providers allow LoA submissions via email but lack support for encrypted email services used by certain firms. This critical security gap exposes firms to significant cybersecurity threats, endangering the integrity of client data. Moreover, GDPR compliance is essential for the exchange of personally identifiable information, with non-compliance potentially leading to broader risks such as fraud.
Additionally, the inconsistent adoption of secure email services introduces uncertainty. Practices like password sharing and reliance on outdated communication methods further weaken security measures. This diversity in communication channels heightens vulnerability, emphasising the need for innovative solutions to mitigate potential threats.
Cost of Chasing for Updates and the Impact on the Advice Experience:
The compounding challenges posed by the LoA process have a cumulative impact on the overall advice experience, potentially leading to a loss of business. Financial advisers find themselves grappling with the intricate task of crafting a seamless onboarding process, hindered by uncontrollable delays and confusion surrounding approach and requirements.
The absence of a standardised process not only frustrates advisers but also leaves clients grappling with an unsatisfactory experience. The delays and uncertainties introduced by the LoA process may translate into missed opportunities and strained client-adviser relationships. Chasing updates can become a sport of endurance, with no medal for reward. With no or little information around expected timescales, progress updates nor notifications the LoA can slip, temporarily, into the abyss.
Industry Reputational Damage and Consumer Duty rules:
Inconsistencies, complexities, and security risks erode trust, whilst delays could see violation of Consumer Duty rules, notably (1) Avoid Causing Foreseeable Harm and (2) Enable and Support Customers to Pursue Their Financial Objectives. The indirect costs incurred from delays and back-and-forth in processing requests inevitably get passed on to the client, exacerbating the negative impact on the industry’s reputation.
To address the hidden costs of the LoA process, our industry is at a critical crossroads, necessitating a proactive and collaborative approach. The trifecta of client confidence, industry reputation, and data security hangs in the balance. Adopting digital processing is not merely a cost-saving measure; it represents a pivotal move to enhance the overall customer experience, and compliance with Consumer Duty.
The time is ripe for the industry to prioritise the LoA process for innovation, recognising its impact on business cost and client well-being. So, let’s innovate and collaborate to improve the LoA process for all of us and importantly for consumers.
