Many years ago, my PA of the time was a ‘green’ who liked to be called ‘Leaf’. As this was the 80s, the views of the non-driving environmentalist were somewhat unfashionable. Leaf had ‘interesting views’ on a range of subjects, but one crossed my mind recently when I was thinking about risk, regulation and protection. Leaf used to espouse the view that the quickest way to reduce the number of dangerous drivers on the road was to mandate that a large dagger be inserted into the steering wheel of the car! Whilst this was not her own original thought (I have heard it expressed by others), the principle that drivers would be far more careful about the way they drive and risks that they take if the consequence of doing so was the potential dagger through the heart!

Having worked in Financial Services for many years with roles in Sales & Marketing and Regulation, I have witnessed a remorseless increase in the attempts to control the risks of inappropriate advice being given to the consumer. I applaud the principle and much of the effort, but I also share the frustration of constantly being expected to create and keep the mountain of documentation/data records that show that the right procedures and outcomes have been applied. The reason that the regulation has continued to grow is twofold – first, regulators rarely propose a reduction in regulation (especially if it is their career) and second, we have suffered with ongoing evidence that bad practice continues. Indeed, even where people follow the rules, some have done so as a sop and found ways to gain at the expense of the consumers best interests.

A major bank has had its sales practices exposed by a leaked document showing how they ‘incentivise’ (or pressurise) staff to sell riskier product choices with greater points value or commission to influence performance. The headlines do not reflect well on the bank themselves, but they also tarnish other Financial Institutions and the Financial Planning market generally. Consumers should be able to trust all advisers and can find it difficult to distinguish good from bad. However, it is made worse when the corporate culture of what should be a respected brand is driving the policy and expectations of adviser behaviour in negative ways. The bank claims that its processes adhere to the regulations and that they would assess the client’s needs along with attitude to risk etc before recommending a product. Whilst they probably do, it is also the case that skewing the rewards to offer more for one product recommendation than another is likely to drive behaviour towards a particular outcome.
Perhaps RDR will address such policies and behaviour, but if people are intent on finding ways around rules and/or choose to ignore risk, there is no absolute guarantee that consumers will be protected.

In one of my previous roles as a director of a Plc, one of the things that became a priority after we floated the company on the Stock Exchange was ensuring that we were aware of and complied with Corporate Governance standards. Most of the Combined Code is common sense, though it is interesting how many times large Corporations selectively ignore some of the standards if they don’t suite their company or personal goals. Alongside our ‘formalised’ application of the Code, we also took out Directors and Officers Liability Insurance. At the time, I didn’t even consider not doing so. However, it got me thinking about why I should feel the need to ‘insure’ the risk that my behaviour might not be up to scratch and another question that came to mind was why was it right that the Shareholders should pay for such insurance (as with most companies, it was a business expense). Ultimately, in extreme cases, we have seen some Criminal Prosecutions of Directors, but as with the dagger in the steering wheel, maybe one way of ensuring that Directors retain a focus on their own ‘moral compass’ is by not offering them protection funded by the shareholder (or maybe we should ask why they need it at all). Regulation can and does offer a degree of security and protection, insurance can provide some security in the event of failure. However, knowing what is right and wrong and applying that for the good of the consumer should severely reduce if not remove the need for such arrangements.

E-Commerce, particularly e-banking could become more difficult and convoluted! This may sound an odd statement given our focus on this sector and our advocacy for greater adoption of doing e-business in Financial Services. Over the past few years and increasingly so in the last 12 months, we have seen the influence of fraud and security departments beginning to negatively affect the process efficiency that should be possible with e-business.

I was one of the first people to use internet banking when Barclays moved from their PC banking application quite some years ago. As with e-mail, my love of electronic activity is borne from an inherent laziness on my part as I hated the old paper processes that took too much time and effort (‘every second counts’ as one of my hero’s Lance Armstrong would say!).

With my old internet banking process, I had my account number, a membership number, an ID number and password – a similar approach taken by many other online banking, credit card and savings companies since (to varying degrees, some still do today). However, Barclays decided to introduce the ‘pinsentry’ – a calculator-sized piece of hardware that is more suitable to Companies that do online banking – others have followed this trend. The effect on me was to reduce the number of times I access my account and to make the process of carrying out transactions, especially new payments, a real pain! Apparently, Barclay has won some security awards for their system and probably feel pleased with their decision. However, this needs to be considered in the context of customer accessibility and usability as well as security.

I am not advocating a disregard for security and I would not want to have to pick up the bill for some cyber thief clearing my bank account. In fact, when I decided to write this blog, I felt somewhat awkward at raising questions about security when I am also an advocate of protection (my past regulator experience competing with my anti-authoritarian maverick characteristics!). However, I do object to having to put up with inconvenience and cost due to criminal activity in the same way as I object to having to pay for car or burglar alarms. Apparently, criminals carry out relatively small transactions as larger size payments used to draw more attention. The problem appears to be that a set of ‘rules’ automatically detect – AND AUTOMATICALLY BLOCK – ‘suspicious’ transactions, often below £1,000. Perversely, whilst banks try to stop such thefts, they apparently do little to pursue convictions as they are not economical to do so.

In the last 12 months, we have seen personal queries and company queries increase and while this may be the price we have to pay for e-business, it cannot be right that the process is so disruptive! Examples of personal and company queries show that when the ‘fraud/security’ rules trigger a query, they now seem to use a text, or voicemail validation asking several questions to ascertain if the transaction that they have just STOPPED is legitimate. I am happy with the use of technology in this way, but at the end of the process, one may assume that the confirmation that you have just carried out results in a satisfactory ‘clearance for payment’… Sadly it doesn’t!! What you seem to have to do – because ‘that’s the way the system works sir’ – is to restart the whole electronic process and payment again (and hope the retailer/merchant has not blocked you as a ‘poor’ prospect). What this says is that the bank has protected itself and will ostensibly claim to have protected the customer, but the fact that they do not (and claim they cannot) restart the transaction for clearance shows that they are focused on their own interests and not the customer.

The pendulum swinging to greater protection is in danger of making it impractical if not impossible to do business online without having to phone the bank or card company beforehand to tell them that you are going to spend some of your money. However, even making the call is not guranteed to head-off the potential rejection as we found out with Santander just this week. When we phoned to say that a payment would be made for IT equipment with a supplier that was recently caught by the security rules of ‘suspicion’, we were told that ‘the system’ may still reject the payment if the security rules were triggered and the filenote would not necessarily stop the automated procedure. In order to access cash machines and make payments on holiday, it is now common practice [requirement] for custiomers to have to notify banks if you are going abroad (something I used to do anyway).

I personally, and we as a Company, take our banking and credit rating activities very seriously (I pay for the use of several Credit agency ID and credit alert systems). With the planned removal of cheques and reliance on electronic transaction methods, it is important that banks and other companies look at how they implement security in a way that makes it impossible or inconvenient to the criminal, not the customer. The experience of the way systems appear to have been designed to-date, seems have ignored the disruption to the customer and be oblivious to the feeling of embarrassment when ‘security rules’ block payments making it look like you have a problem. I suspect that the electronic validation technology has been tested to a degree, but how much testing has been done on the personal impact these systems have remains much less clear. Despite having complained about the experience at Santander (and received compensation), they say that they cannot [will not] change the system!

E-business is a great asset to our modern world and is breaking down barriers to new geographies and markets that would have been inaccessible or uneconomic in the past. We must be sure that the systems and processes are our servant not our master. Convenience and security need to be managed in partnership with the customer at the centre, otherwise the barriers of ‘protection’ will stop the benefits being realised for all.

We have just finished our round of case studies of the use of technology in the adviser world. From the fifteen adviser firms we interviewed we would draw the following conclusions:

* The top distributors have woken up to the benefits in technology and are investing heavily to support their businesses
* The networks are moving to a model of part mandatory use of technology (usually around the submission of business)
* The networks are aligning themselves with particular IT vendors – IntelliFlo, Focus, Distribution Technology and 1st – The Exchange are winning these battles
* The Smaller distributors use a wide variety of technologies and are gaining real business benefits: IntelliFlo and 1st – The Exchange are doing well in this sector, as are Plum and Bluecoat Software
* Product and Fund research tools are also gaining a strong presence with Morningstar, Synaptic, OBSR and Defaqto being most frequently cited
* FinQS’s TCF centre is gain traction in supporting both the smaller IFAs and the networks

During the case studies we covered many different business models and lots of different uses of IT. It has become clear that despite the predictions of doom after 2012, parts of the distributor market are resilient and many are now preparing and will be ready for RDR. Our interviews were however with the leaders in the industry and we are well aware of the horror stories about how many distributors aren’t doing the necessary preparation for RDR. Indeed a recent moneysupermarket.com survey claimed 18% of IFAs were waiting until 2012 to start changing to become RDR compliant.

Hopefully our articles will encourage some of these to change their mind and use technology to re-engineer their business now, so they can start reaping the benefits now and not wait for 2012.