Why the Letters of Authority process needs to change

0:12Amy Austin: Hello and welcome to the FT Advisor podcast. Each week we'll be joined by guests from the financial services world to discuss the most pressing industry issues. I'm Amy Austin, News Editor at FT Advisor, and today I'll be discussing Letters of Authority and what could be done to improve this process with Justine Petulo, Chair of Flag and Representative of Pension Lab, and Nick Green, Strategy and Proposition Director at Criterion. Welcome to you both, and thank you for joining us today. Hi, Amy. Thanks for having us. No worries. Thank you for joining me. Justine maybe I thought we could start with you but maybe kind of explaining you know to the listeners why the LOA process actually needs to be reformed and changed and what's kind of wrong with it as it currently stands.

1:02So this is a long list first of all the letter of authority process is little known but I think we're between us are doing quite good work and raising a profile of what is letter of authority and the amount of resource it takes up in answering and dealing with. The letter of authority process itself is traditionally paper-based or is dealing with paper being scanned and emailed. It then also takes a lot of time and resource from the responding party, typically product providers, and responding to the request. What does the request actually, what's it asking for? And then the responding party having to go back and look at their systems, their data, and respond.

1:53And that process can take quite a bit of time. There's also, before even responding, all the checks to make sure, is this a genuine letter of authority, and is the person who is requesting it who they say they are and they are indeed a member or client of that product provider. Then the responding part, which can again be a lot of paperwork and responding can involve a number of different systems and legacy systems from multiple product providers who have over the years consolidated, bought other names. and then once the response has been issued back to the advisor or even the product provider they then have to process that information put it in their systems and present it back to the client you asked for this request in the first place so there's there's I've summarized it really quickly but the process is quite nuanced and there's a number of little things within the process that are acting as minor blockers and the LOA process is the type of blocker and is probably the most significant blocker to financial advice I've seen and heard of individuals walking away from the advice process because of the LOA process taking too long that they've actually given up and walked away.

3:26And the other thing to remember about the LOA process is that it's not just from the advisor perspective. There are product providers, particularly those offering consolidation services, are also issuing letters of authority to other product providers. So it's not just a problem felt by the requesting party, which can be advisors and product providers it's also felt by the responding providers as well yeah exactly that's the thing

3:59Amy Austin: it's just we all know the advisors this is one of their biggest bugbears you know doing work and day-to-day so it's definitely something that needs to be kind of sorted um and nick from a data point of view what is it that's is it just the heaps of data that is slowing down this process what is it you know kind of looking at data um in our experience um as we've tried to develop um data and integration standards to support letter of authority processes um every party almost seems to have their own take on what is or is not required to um to be delivered as the result of a letter of authority request in order to support an advice process or a consolidation process.

4:46Each party in that has their own view, has their own, that's informed by their experience, their reading of compliance environments, the cost of assembling the data. And so you get a very varied set of responses, a very unpredictable set of responses and needs from different parties. So what Criterion has tried to do is trying to build a consensus around what good looks like here. What does a good letter of authority response contain? What does it need to contain from the advice perspective or the consolidation perspective? and from the incumbent provider perspective, how can that information be assembled and delivered in as low a cost way as possible?

5:43Because trying to address the LOA logjam isn't about trying to drive more cost into the processes for anyone because ultimately it's the client that pays for that. And that's obviously not in the client's interest, but it's about trying to be more efficient through generating as I say that that industry level consensus on what good looks like if we have that consensus then everyone can start working

6:10Amy Austin: towards it sure and this is something I know that you know this pension like established by pension like you know flag this cross industry group which now has what over 16 organizations committed to approve the LOA system is that right Justine yeah we've got 60 I mean we started off with 10 over a year ago we've got 64 maybe 66 now Aberdeen is the latest one to join which is great news as well as for admin so we've got product providers advisors and technology suppliers so it's a completely open and collaborative group and the reason why it is open is because Pension Lab recognized very early on that the LOA process cannot be fixed by one single organization alone it needs collaboration so we need all parties working together so we've got competitors to pension lab on there we've got product providers working together we've got advisors working together and we've also got a number of industry groups and bodies on there so fortunately we've got criterion who've been brilliant and working on the LOA data checklist standard but we've got other bodies on there like um the abi parser um represented represented on that group as well yeah and what kind of where do you want to kind of what is the target for this what do you really want to achieve you know with this group is it just you know everyone actually being collaborative like meeting you know having discussions and is that kind of where this is going so when we started off we recognized that and this is going back to your very first question is that the other way process is completely inconsistent in every single respect um the data the information that's needed the information that's returned the time scales everything is inconsistent so the first thing is trying to make sure starting at the origin the request is how do we make sure that the requests are as consistent as possible.

8:15So that's how we worked with Criterion to get the checklist. So this is what a good request looks like, and this is what you can therefore expect in return. So that's what we've delivered with Criterion. Now the next step is to work on getting that checklist adopted, and we've got some ideas for that, which I'll talk about in the future so we've got the checklist and now we're also looking at the use of paper and in particular signatures as well there's a couple of other things on the list including speculative LOAs as well and then watching briefs on things like pension dashboards and data bill so there's there is a whole raft of other parts to the LOA process that the group needs to work together on and I think on something like signatures for example we can look at what best practice is or could be some just as an example on wet signatures we've got some product providers that demand wet signature on a piece of paper that be emailed in.

9:37We've got some that want the wet signature scanned and emailed in. We've got another one that would like or will accept a signature taken on a digital interface, put on a piece of paper, scanned in. Then you've got the acceptance of e-signature or eIDAS compliant cryptographic timestamps, digital certificate, client signature sent in with the LOA. And I think it's been able to share what the best practices and what we think we can do for signatures and even just the idea of signatures. is there a better way of even and I think for signatures there's two things there's you know why are they being requested is to check the you know if it's genuine and if the person is who they say they are for identity verification which in 2025 asking for signatures is mad I just I still can't believe that this is happening but this is where we are and then looking at what's what are ways that we can do this um and there and you know you and i and we all know when we're dealing with internet banking that there's use of video when you're talking into your screen there's all sorts of other ways of identity verification that perhaps we need to start looking at in the LOA process so flag's got a long list of things to be looking at um so yeah we shall see how it goes I suppose the important thing to remember is that it is a voluntary group so it is just made up of volunteers and so we're reliant on the rest of the industry wanting to move in the same direction.

11:23Amy Austin: Yeah and that's the thing for advisors it must be hard because obviously they're dealing with all these different providers you've got to kind of remember being like oh yeah this one likes it this way this one likes it this way like must have to have this long list of like kind of already like knowing what they want to make it quicker because otherwise then they come back and say nope that's not right and then you got to go back and forth again yeah I can see this is probably why people like pension lab are in the space is to take that headache away um but it's just all it's doing is passing the headache onto somebody else yeah and Nick with this kind of data checklist um as I understand it's on pensions at the moment but I know you're all looking to expand it and kind of do you think that people will you know welcome this and think oh thank goodness you know we've been waiting for this um this is going to make life a lot easier um the feedback that we've had so far has been really encouraging um uh we have had so we delivered um in the spring um uh a LOA data checklist for pension products um we have followed that up with um another checklist for protection products.

12:28And we have in preparation and hopefully to be delivered in the next week to 10 days, there's a hostage to fortune, one around other types of investment products. So platform-based arrangements, for example. The feedback that we've had so far has been universally positive, not necessarily about all of the content of the checklist. Listen, when we brought this, particularly to the advice community, our hope was that we would get feedback around where it could be improved. What have we missed? What bits actually are redundant? I just not required. But the level of engagement we've had to help to try to refine this, as I say, this consensus on what good looks like has been very positive.

13:20Criterion is a small organisation that has a relatively light footprint in the advisor space and so we have been overwhelmed by the level of engagement that we've had with this. And as I say, whilst there have been very constructive comments around the content of the checklist, which we absolutely welcome, the body language, the mood music behind those bits, the feedback, have been entirely positive, entirely supportive, have been saying, if we can get a single industry view of what good LOA practice looks like from the signature kind of conundrum that Justine was speaking to, through to the data fulfillment, then it means everyone knows what to expect.

14:09Everyone can then build their processes around that and run them more efficiently, rather than having to develop and maintain this weird, arcane set of knowledge that's like some sort of secret set of scrolls you need to learn in order to be able to extract information from providers. If we can generate consensus, everyone can work to that for the benefit of those actually directly involved in the process, but ultimately the consumer.

14:37Amy Austin: Yeah, exactly. It definitely sounds like it will make things 10 times easier just to be able to kind of, you know, have your template be like right this is it I know everyone's going to accept it rather than you know tweaking it as and when and god knows how many times you know just to make it kind of compliant with different providers because I mean as we all know there's loads of them we think this will work both ways it'll it'll work for the advisors by uh the advice community by setting that common expectation but there are expectations on the provider side too by giving providers a standardized shopping list of data that they can use to respond to LOA requests that's been validated at least to some extent by the advice community, then they have a better chance of their responses being right first time.

15:27And that ultimately reduces failure demand on their service teams. They don't have inbound calls saying, well, you've missed out three critical data items that I specifically asked for in your standard response, because now the standard response includes that. So often this situation is characterised, caricatured as a provider problem. As Justine says, across the LOA process, there isn't any one set of actors or types of organisations that can just fix this. Everyone bears the brunt of this and everyone needs to play a part in fixing it.

16:05Amy Austin: Yeah absolutely and Justine it is getting slightly better isn't it you know we have seen times improving I know you've just had the latest data come out so I don't know if you want to kind of talk us through that. Yep so the LOA performance index we've just issued for quarter two 2025 and there's been a significant improvement across the board and particularly for two or three product providers who've made a big improvement. Now, I'm going to caveat this by saying it might be the time of year, tax year is done, and they're now being able to respond. But I also know from our one-to-ones that we're having more frequently with individual product providers is that they are investing in their processes.

16:58There is one particular provider that has cut off all paper from their letters of authority. So that is a significant improvement. Another one has moved to accepting Pension Lab's e-signature. Again, that helps with all the processing, makes it much more faster. And there's just small little tweaks here and there that we're working with with certain providers and platforms to say, well if we put this in there would that help your systems yes and then is so that's the product provider side and their improvements and then also the technology that pension lab's providing as well and particularly their routing so making sure that their other way requests are routing to the exact right internal department first time and that's also speeding up the numbers as well but it is reassuring and I'm definitely enjoying having more conversations with more product providers who are doing more on the LOA processing so it's we're getting there yeah so it's great

18:11Amy Austin: news I'm really pleased yeah I guess it's refreshing to see change you know when you're kind of working towards you know getting change actually seeing the numbers coming back and seeing that you know you know we started at say like 40 days wasn't it and now it's like some people are down to like six ish and you think well thank god you know that's a massive cut we can get everyone kind of onto that level you know I mean hours would be better than days but I'm guessing I mean we've a pension have made it quite public that legal in general have come back within two hours we have had another product provider do exactly the same however we're not going to shout about it until it is consistent and this is this is the point we need consistency and this is where I think quarter three 2025 will be interesting and whether the numbers will continue in the downward trajectory or will we see a little blip up um over because of the summer holidays and whatnot you know things can change but I'm hopeful that the general direction is a time reduction.

19:17Amy Austin: Yeah fingers crossed because will things you know like the pensions dashboard and all other sorts of regulation coming in is that going to make it a bit harder for LOAs do you think? So the the research that we did and in speaking to product providers is pension dashboard will actually push LOA numbers to an eightfold, which was the number. So that's a frightening number. We've called it a tsunami of LOAs that will be heading towards pension providers. And the reason being is there are no transactional capabilities on the government pension dashboards. And so people are going to see their pension pots for the first time and think, I've got to do something about that.

20:06And that's going to then kick off letters of authority like we have never seen before. And I think I view letters of authority and the way a company processes them almost as a temperature check and an indication as to how the business responds to the consumer. And I really do feel it's a good indication of their consumer duty responsibilities. so the pension dashboard is going to create an increase for sure i just hope that we're prepared

20:38Amy Austin: for that and nick do you think you know data checklist and that will help here you know when there is you know loas flying around all over the place well hopefully it will be um uh increased volumes through well-controlled channels rather than absolutely all over the place but um i i I think, again, go back to the word consistency. If there are a consistent set of expectations, not only does that mean that people can set up their processes in a more efficient way, it actually is a key foundation stone for automation. if LOA responses are going to rather than meeting I don't know 50 or 60 percent of needs first time through that consistency of expectation can meet 95 or 98 percent of needs first time then that's a much more compelling case for delivering automation and ultimately the holy grail data integration so the the checklist is a foundation stone here it's a starting point But it's a really important one.

21:44If we get that consistency, then it's much easier to build a business case for the kind of improvements that will be needed in order to deal with the huge volume increases that Justine is talking about.

21:57Amy Austin: Yeah. And to kind of round us up today, I just wanted to ask you both, where do you want to see LOEs get, you know, what is, where do we want to be in, say, like five years time? What's the ideal? I think for me, this is a personal view rather than necessarily a criterion house view, but there is nothing inherently problematic with LOAs. There's nothing that means that the process couldn't be automated and integrated in a seamless and transparent way that could achieve the hours that you were talking about there, Amy, and that Justine and Pension Lab have seen in some encouraging but isolated circumstances.

22:41It's just a case of getting data that exists from where it lives now to where it needs to be to work. We do that with quotation information. We do that with valuations, with remuneration reporting. All of that integration already exists and is making advisors' lives easier and has been for decades. Letters of authority are structurally not really that much more of a complicated problem. And so with the right focus and the right investment and the right, I guess, determination to do the right thing ultimately by the consumer, this is a problem absolutely solvable through those same means so certainly in a five-year time frame even in a 12-month time frame I'm an optimist on this it isn't that hard it just needs some focus.

23:32What about you Justine? Well yeah very similar I think I'd like to see it standard I'd like to see it automated and I'd like to see it integrated it's just my three things I would like for the LOA process and if we can get that sorted then it will help so much with consumers and we've got targeted support coming along and this is a major consumer duty responsibility pension dashboard's going to throw it all up and now is the time to get the LOA process sorted out and if you're surfacing up your data for pension dashboards then have a think about how you can better process those requests to enable normal human beings to just consolidate their pots for

24:20Amy Austin: a better financial future yeah that's the thing it's now isn't it you need to start it now and let's hope and pray we never see a wet signature again fingers crossed amy but well nick justine thank you very much for joining me today it's been very interesting thank you and everyone else tune in next week where we will discuss other goings on in the industry. Thank you.