Advisers’ professional indemnity insurance will not cover them in the event IT systems they have recommended go wrong says Syndaxi Financial Planning director Robert Reid
The words competence and suitability are probably the most frequently used terms in our sector – but before auto enrolment who would have foreseen the exponential rise in advisers’ expertise in all things IT?
Of course I am being sarcastic, but with so many suggesting IT solutions for auto enrolment I wonder how many of them have taken the time to do any due diligence on the claims made by these suppliers.
My fellow columnist Ian McKenna has done much of the heavy lifting in this area with his research, but the integration and compatibility of systems still need to be assessed by intermediaries.
And I am not convinced that many advisers and their firms can deliver to a high standard in that area.
Let’s take the example of CSV files. On a recent UK tour of gigs speaking to groups of advisers have been asking what CSV stands for. I have been getting lots of silence and the occasional ‘its an excel file’. When I explained the acronym stood for comma-separated values, and then explained the effect using commas to denote thousands would have on an import, I suddenly had their attention – because they finally appreciated why some imports had failed.
Providers’ templates are overly complex – one provider has 17 versions – and many are prone to error.
Lets consider a typical scenario where the adviser has a client with a payroll system from one supplier and middleware from another, both of which need to link to a provider. What could possibly go wrong?
The payroll doesn’t accept CSV – it wants an excel sheet with headers, the middleware needs its file in CSV, and the provider has their own layout. So in effect nothing fits easily or possibly at all.
The irony here is that the CSV format is a one-way, once only means of communication that holds back seamless updates. At some point it will have to be replaced by a method that allows two-way traffic. Human error needs to be minimised if costs are to be contained.
When providers and advisers pop up to suggest they have the ultimate solution I really wonder if they understand the current position as the major payroll providers battle against the number of legacy systems they have in use.
Middleware is only as good as its links to other applications and its ability to supply when needed a detailed audit trail.
The Pensions Regulator will not take software failure as an excuse but as an indication of a lack of preparedness.
Its about time providers accredited software and certified what systems can work with their own systems.
The reality is that at some point things will go wrong. And when they do, employers will look to their advisers for compensation. If an adviser has told an employer that they have selected a system that will do a great job and then they end up incurring significant costs because it doesn’t, claims will be made.
Some advisers will send claims to their professional indemnity provider who will be bemused to say the least. Few if any will cover advise on IT after all the risk is financial advice not software consultancy. PI providers will simply say advisers advising on IT are acting outside their area of competency, and outside the realms of their cover.
The time is now to check if you are covered. I would be surprised if you are, so when you find out you are not, it’s time to stop advising on something outside your core expertise and place the responsibility on others.
And simply selecting Nest is not a ‘get out of jail card’ for advisers. If an adviser has been paid for expertise in ensuring auto-enrolment is implemented smoothly and something goes wrong, they will find themselves on the hook. Just because Nest is backed by the government does not make it a safe harbour option for advisers holding themselves out for IT consultancy contracts beyond there area of expertise.
If you don’t understand all parts of the process and have not stress tested everything you use, take my advice and steer well clear.