Cover story: Why letters of authority are stuck in the past

Have you heard about the invention of a pair of glasses to help those with sight loss get a better view of the world?

Researchers at Oxford University have worked on the development of ‘smart glasses’, which give visually impaired people information about their surroundings to assist them in going about their life.

Meanwhile, the other day my dad showed me a video of a man walking along the street while wearing a virtual-reality headset; he was performing hand gestures in the manner of ‘Iron Man’ Tony Stark. Presumably he was deep in the metaverse.

The lack of tech… inconsistencies… delays… it all needs a massive overhaul

The Future Today Institute has predicted that, by 2030, most people will be in the metaverse in some way — whether for work or educational obligations, or to “live the majority of their waking hours ‘jacked in’”.

Tech billionaire Elon Musk has invented and, apparently successfully, installed a chip into a person’s brain that could enable them to control technology using their mind. And we have tech that can photograph parts of the universe we didn’t even know existed. In short, the pace of technological change across the world is astounding.

So why is it that, for certain processes, some financial services providers still make life difficult for clients and advisers by sending out stacks of paperwork that require wet signatures?

Age-old problem

If you want to see the whites of an adviser’s eyes (because those eyes are being rolled), all you have to do is say the words ‘letters of authority’ (LoAs).

This process is a vital part of onboarding clients – and it is also the biggest pain point for most advice firms.

The only way we can solve this is to get together as an industry

“The lack of tech on the matter, inconsistencies of the process by providers, delays by providers, inconsistent info from providers… it needs a massive overhaul,” says HK Wealth Managers owner Garry Hale.

Calton Wealth Management chief executive Tom Ham says his firm is experiencing “big issues” with LoAs, after it bought a firm at the end of last year and recently took on some new advisers.

“We’re still waiting for a stack of policies to transfer so they’re under our agency,” he says. “This is despite the fact that we spoke to each provider and asked what it required before these people even joined the firm.

“That has two effects: the client engages with us, and they want us to give them advice; but we can’t give advice until we know what they’ve got in terms of policies, because the advice may be to leave the money where it is.

“If providers are then taking 12 weeks to get back to us to give us agency and plan information, the client may have lost faith in us by the time they’ve done that.

The #LogYourLoAPain initiative aims to highlight the true cost to advisers and providers of maintaining current practices

“Perhaps more importantly, we may not have been able to give the client advice in a timely manner before a big milestone for them.”

Origo partnered with The Lang Cat to publish a report in the autumn of last year, looking into the extent of the problem.

“Artificial intelligence [AI] is a reality and we all have more computing power in our pocket than that which sent Apollo 11 to the moon,” Lang Cat founder and chief executive Mark Polson wrote in his introduction to the report.

“And yet, here we are. Every financial adviser has a unique entry in a digital register. Every provider does too. Very nearly every client has the means of verifying their identity digitally. And what does our industry do? Demand letters with wet signatures.”

It seems like something that could be a win for everyone if we can solve it

As the report pointed out, the LoA process should be simple: an adviser with the appropriate authority asks for essential information about investment to help build a plan for their new client. But the process is a pain from start to end.

Struggling with admin

The Pension Lab founder Scott Phillips says advisers face a challenge from the moment they ask a new client for their signature in the initial meeting.

“The adviser is almost having to sell to the client that it’s going to take two or three weeks to get this information back, on average, and maybe up to 12 weeks before they can get advice,” he says.

“It’s a real challenge for advisers in terms of managing those expectations and helping consumers to understand why that’s the case in 2024.”

The Consumer Duty is supposed to legislate for improvements. But there needs to be the weight of the industry pushing for a solution

The worst-case scenario is that the adviser could lose a client’s business because, Phillips says, this is a service industry and “it’s just not the service that you would expect, but it’s not the adviser’s fault”.

Back in November 2021, I wrote about my own experience of transferring all my small pension pots into PensionBee — a controversial decision that attracted disapproval from some advisers. The process was straightforward, nonetheless.

I simply put in the details I had about my pensions and PensionBee contacted my old providers to request the transfer.

I was subsequently emailed by three of my old providers — Aegon, Aviva and Penfold — asking me both to verify that this was what I wanted to do and to sign electronic documents.

And that was it — all the money from those pensions now in one app.

More providers are making a difference, but still the vast majority are causing a painful process for advice firms

‘Wow, that was easy,’ I thought — until it came to transferring my final pension pot.

I did not name the provider in my original article. But, following publication, I got a quote from a spokesperson, so now I guess I can: Virgin Money.

I received at least five letters from Virgin Money, all telling me I needed to verify my home address, to which I responded.

I then received another letter, informing me I had to send two forms of identification. This meant taking a scanned and printed copy of my driver’s licence to the Post Office and paying £13 to get a verification stamp.

I was also told I needed to send another form of identification: a paper utility bill, not a bill downloaded from online. I had opted for paperless statements for everything, so this proved a problem.

In response to my asking why it had taken so long to process my transfer, the Virgin Money spokesperson told me: “We have a transformation programme under our joint venture [JV] with Abrdn that will deliver significant improvements for customers going forward, including for those making pension transfers.”

It’s not good for consumers, it’s not good for advisers and it can’t be good for providers

This was a few years ago and the spokesperson never responded to my question about what improvements had been made since the JV, which happened in 2019.

Just recently, though, Virgin Money announced it had agreed to buy Abrdn’s stake in the JV — which launched last year as Virgin Money Investments — for £20m.

This whole story sounds ridiculous, doesn’t it? From my conversations with advisers, however, it is not unusual.

Provider inconsistency

There is a lot of talk about how advisers can use — and are using — tech to help drive efficiency into their business (AI being the buzzword of the moment).

But, as many point out, there is only so much that advisers can do. Some parts of the client-onboarding process are simply out of their hands.

The time it takes to process LoAs is not the only issue. The variability in processes of different providers is also a key pain point.

We’re still waiting for a stack of policies to transfer so they’re under our agency

A support-services firm for advisers, called Intuitive, publishes a regular document with updated information on what each provider requires for submission of LoAs. It serves to highlight some of these discrepancies.

The Origo and Lang Cat report says the LoA process is incredibly inconsistent, and has been for many years, which leads to “significant time wasted by firms”.

Specifically, it says: “It’s difficult to know where to send the requests to, in which format, and even if both of those simple tasks are accomplished there’s the processing time to add to that.”

To explain just what is wrong with the current state of the process, Origo chief executive Anthony Rafferty suggests imagining you’ve just been to your GP, who says you need to see a specialist consultant.

The problem is that every consultant refuses to accept a referral from any GP without the GP in question identifying themselves. Each specialist consultant also has their own standard for what constitutes an acceptable form of identification.

Ultimately, these providers are suffering reputational damage here as a result

“Some check the GP Register or phone back to confirm,” says Rafferty. “Some need online checks. Some need the patient to furnish a wet signature. Some change their mind depending on which administrator in the consultant’s office is working that day. And none of them publish what it is they want, so it’s a constant guessing game.

“Even if you get it right, the ID step can take months; months during which time the patient could well have — not to put too fine a point on it — died.”

The situation with LoAs is similar: some providers require an electronic signature; some require a wet signature; and some require the LoA to be sent via a portal. With this variety of routes, there’s no standardisation.

“Electronic signatures are legally recognised in the UK,” Phillips points out. “So providers, in theory, should be accepting them. But that’s not necessarily the case.”

Same old excuse

The reason that providers give for delays to the process, almost without fail, is that they are ‘experiencing unexpectedly high volumes of enquiries’.

This is an affliction that seems to have gripped providers in many sectors since the Covid-19 pandemic. But there comes a point when high volumes are no longer ‘unexpected’ but are the norm, and perhaps providers need to hire more staff or do whatever is necessary to make high volumes genuinely unexpected again.

The LoA process is incredibly inconsistent, and has been for many years, which leads to significant time wasted by firms

As a side note, money expert Martin Lewis has recently launched a campaign against ‘Sorry for unusually high call volumes’ recorded messages, which he believes could be breaching the Financial Conduct Authority’s Consumer Duty rules.

Some advisers suspect that these messages may also be a play to keep money within the business. I am not suggesting that is the case for most providers. But, if it is, this is a flawed line of thinking.

The Origo and Lang Cat report suggests that advisers will be, at best, reticent to place new business with providers they deem to be slowing down the LoA process.

“Ultimately, these providers are suffering reputational damage here as a result, as well as being at risk of falling foul of the Consumer Duty cross-cutting rules identified in the introduction,” it says.

It is also, obviously, the obligation of providers to adhere to the Consumer Duty.

Electronic signatures are legally recognised in the UK. So providers, in theory, should be accepting them. But that’s not necessarily the case.

Despite LoAs being the bane of most advisers’ existence, not much seems to have changed in the past few years. You have only to look through the archives of Money Marketing to see that the same old issues keep cropping up.

NextWealth published a report in 2020 detailing some of the pain points faced by advisers in the LoA process. It listed some of the main issues:

– The information requested is not standardised. Several different letters may need to be prepared for a single client, requiring significant additional time for rework.

– The submission format varies from provider to provider, for example through a portal, secure email or post.

– For some providers there is no single receiving point for an LoA and, therefore, the advice firm must elicit the correct team’s email address, which adds time and confusion.

– The LoAs must be chased through each provider system to ensure deadlines are met.

– Sensitive client information is being transmitted in an unsecure way, exposing the advice firm to cybersecurity risks.

The NextWealth report suggested most advice firms had had to build in workarounds and extra process steps, such as phone calls before each submission and more telephone checks to follow an LoA through the system.

This sounds like something that was written this year, not four years ago.

It’s a real challenge for advisers in terms of managing clients’ expectations

NextWealth client delivery manager Hannah Wemyss says the consultancy is hearing pretty much the same story from advisers today.

“We have heard that more providers are making a difference, but still the vast majority are causing a painful process for advice firms,” she says.

Plan of action

This is clearly a massive, business-critical problem and has been for a long time. But what can be done about it?

The resounding answer is standardisation. And, to get standardisation, we need more collaboration.

This is a service industry and it’s just not the service that you would expect – but it’s not the adviser’s fault

“It’s perhaps understandable, given the breadth of providers in the UK that work with this process, and the often-siloed pockets that exist as a result, that the impacts haven’t been highlighted as starkly as they have before this paper has been published,” says the Origo and Lang Cat report.

“To that end, we’re proud to have been able to shine a bright, uncomfortable light on the results of some providers’ practices.”

The report does point out that, of course, not every provider is as bad, or as good, as each other.

But, it adds, “we think we can all agree we’re much further away from an ‘acceptable’ state – let alone ‘good’ — than we should be”.

Phillips says: “The only way I think we can solve this is to get together as an industry.

Very nearly every client has the means of verifying their identity digitally. And what does our industry do? Demand letters with wet signatures

“You’ve got some tailwinds, such as the Consumer Duty, which is supposed to legislate for improvements. But there needs to be the weight of the industry pushing for a solution.”

In January this year, the Pension Lab launched a campaign called #LogYourLoAPain to quantify the scale of the problem. Together with Beyond Encryption, Criterion Tec and Punter Southall, the fintech boutique is calling on every UK advice and financial planning firm to record the number of letters they deal with, to make the case for a modern-day alternative that can “transform the painful process”.

On the launch of the campaign, Criterion Tec managing director Billy Burnside said the LoA process had been a “persistent source” of industry frustration for a long time and needed tackling.

Phillips says: “The #LogYourLoAPain initiative aims to highlight the true cost to advisers and providers of maintaining current practices, and to enable firms to see the benefits of working collaboratively and to identify solutions to improve this lengthy and outdated process.

If providers are taking 12 weeks to get back to us, the client may have lost faith in us by then

“First, we’re trying to get everyone together to quantify the numbers, then play that back to the industry and the regulators. Then we want to try and galvanise this body of support to push for a solution, collectively.

“It’s not good for consumers, it’s not good for advisers and it can’t be good for providers. It seems like something that could be a win for everyone if we can solve it.”

My experience with transferring one of my pension pots was a bit irksome. I can only imagine how annoying these slow processes are for advisers, who face this issue daily and on a much larger scale. In an era where technology has come so far, the industry should be doing better than wet signatures and stacks of paper.

The title of the Origo and Lang Cat report sums it up perfectly: Just Fix It Already.

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This article featured in the March 2024 edition of MM. 

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