Managing Orphans via Your Wealth Planning Software to Improve Compliance

In the advisory world an insurance company holds a client’s assets on their books while an Independent Financial Advisor (IFA) supports the client with financial advice. From a regulatory perspective, the insurance company follows its own regulations, like Solvency 2, while the IFA follows regulations targeting financial advice. 

For a variety of reasons, sometimes a client gets separated from an IFA, hence losing access to an advisor for help with their financial planning. However, the client still has assets on the insurance company's balance sheet. When this happens, the client is referred to as an ‘orphan’. This is not unusual and insurance companies can have thousands of orphans on their books.

The challenge with orphans is a special case of the wider challenge of monetizing dormant customer segments in the existing books. What is unique to orphans though is the regulatory perspective. The insurance company does not usually have regulatory permits to provide financial advice, nor wants to have one, but they have a regulatory obligation from e.g. a consumer duty perspective to ensure that all the clients on their books are professionally managed.

This leads to the complex equation of ensuring consumer duty without being regulated as a financial advisor. Kidbrooke’s view is that this can only be accomplished through technology (or wealth planning software) and self-service tools, for example, powered by OutRank®. It is worth noting that the regulatory solution for orphans, can also benefit the IFAs in their role to create demand and customer satisfaction.

Consumer duty for Orphans

Supporting an orphan without being an advisor requires careful analysis of the regulatory context. Kidbrooke® has spent time talking to regulators to understand the broader situation and general possibilities – however, we must stress that final approval is required on a case-by-case basis.

Regulators are aware of the complex issues arising in the space between financial advice and consumer duty regulation, as well as the broader issue of the advice gap and the need to find cost efficient wealth planning software solutions centered around self-service. In general, there are two main considerations that need to be in place for self-service, not to be considered financial advice in the regulatory sense:

• Customer data needs to be current and up to date. This is challenging in a self-service context since the customer must be engaged enough to consider spending the time and effort to keep their data up to date.

• You should generally stay clear of recommending specific investment products since this typically falls within the boundary of regulated financial advice.

Given these considerations, and by leveraging a forecasting and simulation engine such as OutRank® in your wealth planning software, we see many capabilities which can be beneficial both from a regulatory and customer perspective:

1. Build wealth planning solutions using customer data which is limited to the specific portfolio and not the wider situation of the customer and focus on data that is easily kept up to date, such as the age of the customer based on her date of birth.

1. From a consumer duty perspective, investigate if the customer has any financially unsuitable products on their books. This can be automated, and notifications can be communicated directly in digital channels potentially activating a dormant or orphaned customer.

1. A risk profile has the potential to be regulatory compliant if it is used in the correct context, i.e., not to recommend specific investment products. With a self-service risk profile one can educate a customer on how she should consider risk. For instance, a customer with a higher risk tolerance should have a larger exposure to equities. This way it is possible to help customers make better choices also in a self-service or self-advised context.

1. Build wealth planning software solutions that include digital self-service forecasting and ‘what-if’ scenarios for all financial situations including reports to inform the customer what may happen, driving financial education and awareness. 

1. Create an execution filter for when customers want to change an investment. This helps the customer avoid making ill-informed portfolio re-allocations or trades.

1. If you have information about the target time horizon of the investment, provide investment solutions with automated re-balancing and de-risking, like a personalised target date fund, which suits any non-active or dormant customer such as orphans.

1. Map the financial position of the customer to what is happening in the market. Using automated notifications in your wealth planning software, one can give a customer a heads-up on their financial position.

At Kidbrooke® we have seen the business effects of this type of solution. They support a more compliant setup where aspects such as promoting good outcomes and provide continuous monitoring also for dormant/orphaned or low-value clients. Customers also become more engaged and interested in their financial position when provided with self-service tools capable of supporting their financial understanding and decision-making. 

What is more, this also overcomes a major hurdle in data management. Well-designed wealth planning software solutions motivate the client to update existing data and even share more relevant data with the insurance company. This creates true engagement and potentially leads to more customer centric capabilities.

What’s in it for the IFA’s

Self-service solutions are sometimes viewed as a competing channel to physical advisory solutions, leading to reluctancy from physical advisors to complement their services with self-service tools.

However, in our experience and from what we see in data from our customers, this is not the case. This data tells us that digital self-service solutions also work as demand generation for the services provided by the insurance company. Customers who go through a self-service channel to learn about their personal finances are more prepared for a physical meeting and convert faster, ultimately committing more assets to management than other customers. 

This leads to increased execution and more effective and engaging advisory meetings. By also utilising proactive notifications, either direct or advisory governed, IFA’s can scale their ability to engage with clients and at the same time stay relevant over time. Hence, we believe that wealth planning software for dormant customers such as orphans can, and should simultaneously, be used by IFA’s linked to the insurance company to enhance their proposition.

Partnering with Kidbrooke® to get the most out of your wealth planning software solutions

No-one wants to add to the complexity of your existing tech stack. We can keep it simple by integrating our OutRank® API into your IT infrastructure. Because we are experienced in finance and finance-related technology, we can support a wide range of use cases across wealth management and insurance.

Our API separates the presentation layer from the complex backend computations, allowing you to adapt the presentation layer to the relevant customer segment and use case. You can leave the quantitative methods and computational finance issues to us, focusing your time on providing an excellent service to all your external and internal stakeholders.

Monitoring and mitigating various types of risk: key person risk, risk of clients defecting to competitors, risk of large-scale digital transformation projects failing, software performance lagging – these are the topics that keep business leaders up at night. Because of our experience in working with small to large companies, OutRank® is a cost-effective and low-risk way to upscale your wealth planning software capabilities and ensure shorter time to market for superior and engaging customer experiences.

Our technology has been battle-tested with large insurance companies and asset managers. It is reliable, cloud-based, and scalable. With OutRank®, you can experience the only managed API solution of its kind: with reliable, high performance, supporting interactive meetings, realistic scenario generation and balance sheet and cash flow modelling including tax implications across all domiciles.

At Kidbrooke®, we believe that our technology can deliver positive, dependable, and highly differentiated outcomes to clients. 

To learn more about how Kidbrooke can help you achieve your business and IT goals, please get in touch.

www.kidbrooke.com