7th January 2011

Client data – is it reducing the value of your business?

If nothing else, the Retail Distribution Review has focused IFAs attention on business planning and back office organisation. And what is becoming increasingly obvious is that - whether you plan to sell your business as a going concern or you have decided to sell your client book - poor client data can, and will, cost you.

A purchaser may have a variety of reasons for wanting to buy your business, but one factor will be common – the size and sustainability of your trail and renewal commission stream. Most IFAs now recognise the link between this “recurring income” and value, but only a minority are genuinely focusing on the opportunity; whilst even fewer are focusing on making it easy for a buyer to get comfortable with the data that underpins both the income stream itself and the ability of the buyer to provide continuity of client service post sale.

It is important to realise that the relative attractiveness, and hence the value of your business, may well be compromised if your client data is not fully up to date and comprehensive. In return for receiving the income stream, a prospective purchaser of your business will be accepting responsibility for the ongoing service of your clients and potentially, the risk of the historic advice that has been given to them. So it is vital that the information you give them is easily transferable and reusable, is completely up to date and provides a full history of the client relationship.

But our recent experiences on the acquisition trail have shown it is rare to find good client data in easily accessible form. Many IFAs are using relatively expensive ‘back office’ systems, which could provide a really sound basis for recording a full advice history and commission data. However, in most cases these systems record only basic ‘static’ client data, unconnected to the policy and fund holdings that generate recurring income. The only place where we can find a satisfactory and complete history is usually in paper files, which may be accurately maintained but they are a totally inefficient basis for a buyer to assess the overall risk and value in the ‘book’. It also represents a major hurdle for the buyer in terms of ‘importing’ data to their systems.

From your - the sellers - perspective, it is vital that you have the reassurance of knowing that your clients will continue to be serviced properly going forwards, that you get full value for your business and that, if required, you are able to store and retrieve your client files post sale.

All these factors converge to suggest that client data should be stored within one centralised database, holding client contact information, policy details, client activity, income and accurate management information.  From a purchaser’s perspective, it is far easier and more appealing to engage with a firm that has a centralised database and process than one using multiple databases, systems and even physical records. It is also likely, to have the benefit of allowing you to receive electronic data feeds from providers to update your clients’ policy details, valuations and apply commission income to clients and policies.

The impact of this data challenge is that business values are depressed and, in extremis, buyers will walk away. We have certainly found situations where we are put off buying basically sound and profitable businesses, purely on the basis of poor, inaccessible data.

So, what should you do?

Firstly, ensure you are making proper use of the back office systems you pay for. You could also be looking to transfer or consolidate all of your client data to an industry standard IFA back office system; one where you can build a comprehensive database on your client bank, which enables easy analysis and subsequent transfer of that data to a potential purchaser.

The better known system providers have long experience of data issues and can provide tools to analyse the size of the problem and help and guidance to address the gaps. This does not mean that you and your advisers can avoid doing anything; as prior to sale you remain responsible for providing missing data and reviewing the end result.

This of course is easier said than done and precisely what and how you achieve it, to a large extent, will depend upon the state of your existing records. It will initially require a full analysis of the current information held and then subsequently a data cleansing and enrichment process that should cover several key areas.

Key Data Fields - Client Relationship Management

Up to date basic client contact details (postal address, email address, telephone contact details)

• Data of birth
• NI number
• Data Protection Act and marketing preferences
• Relationships - knowing dependents, siblings and business partners or associates  
• Client review dates
• Client activity (uploading all relevant documents, telephone call notes and correspondence)

Key Data Fields - Policy Management and Electronic Valuations

• Selling adviser of the policy
• Provider
• Plan type
• Policy number
• Fund holdings
• Valuations
• Policy start date
• Current contributions
• Maturity date

Key Data Fields – Reconciling Commissions

• Client name
• Provider
• Policy number

It may also require you to undertake a transfer of physical and historic records to a convenient electronic format or document management system.

Secondly, several of the main platforms provide excellent data cleansing processes and resources, usually linked with mutual fund re-registration; you should seriously consider making this a business priority, where it is genuinely in your clients’ best interests – it usually is!

Thirdly, make it a business imperative to get electronic links between platform and product providers and your back office system working properly. The industry standard systems come with such capability as part of the package; you will need to apply business resource to get these links working properly but the benefits are considerable. Not only are you then in a position to get a little closer to providing client valuations on an automated basis, but you will also be able to check that you are getting income to which you are entitled to.

Having done all of the above, you then need to make sure that your processes are set up so that your data integrity remains good and does not ‘degrade’ over time.

This obviously provides you with a considerable challenge and it will cost, you, both in terms of payments to external parties and in adviser time. However, the value of your business should improve comfortably as a result, possibly by up to 25%. So against this background, can you afford NOT to make the investment?

Robert Imbert (Director of Intermediary Sales)

Close Asset Management Limited 

Back Office, RDR