DIN 77230: “Software can contribute significantly to guiding the process of advising customers”

At the beginning of May, after more than three years of committee work almost 30 representatives of banks, insurance, software and consulting companies, together with consumer protection groups and representatives from associations and organisations, agreed on a draft of DIN standard 77230. This defines an agreed framework for a basic analysis of the financial situation of private individuals. We spoke to Klaus Möller, chairman of the committee at DIN responsible for this, and Partner/Managing Director of the DEFINO Institut für Finanznorm GmbH, Nils Ciach, Head of Product Management Advisory at ELAXY I CREALOGIX, and Olaf Kerls, Product Management/Business Development at ELAXY I CREALOGIX about how the standard affects the advisory process and their business for banks and insurance companies.

Mr Möller, DEFINO played a decisive role in the development of and the discussion surrounding DIN standard 77230. What is it all about?

Klaus Möller: DIN 77230 builds on the specification DIN SPEC 77222 “Standardized financial analysis for private households” and takes this further. The aim was to develop a binding framework for diagnosing the financial status of private customers.

But every bank and insurance company has its own approach and individual strengths. Will their unique position not be reduced to a common denominator by this process? How will it be possible to differentiate between them?

Klaus Möller: Of course, financial institutions face the challenge of differentiating themselves through their services. But that is only in the second step. As with a medical diagnosis, the financial review should lead to objectively verifiable results. We have developed the rules for carrying out a financial blood count, so to speak. In this way, we want it to make it possible for different advisers to assess the financial situation of a private household in exactly the same way. What treatment they then recommend is a different matter entirely, and depends on a number of different factors, such as customer preferences and their company policies. As for DEFINO, we also offer a service to certify financial advisers, guaranteeing that they will adhere to the standardised diagnostic process.

Olaf, you have been following the process in the Standards Committee over the last three years. How do banks and insurance companies feel about this? Can they get on board with the standard?

Olaf Kerls: They definitely can! A rule-based analysis of the financial status quo brings with it a series of benefits: it increases customer confidence in the institution, establishes a guaranteed quality of advice, and helps to shift the view of the overall situation to the customer’s and not the consultant’s viewpoint. The standard provides an order of priority for the topics to be dealt with. After covering subsistence needs through the protection of life risks, comes asset accumulation and pensions. If there is still some financial headroom, you can then tackle wealth optimisation. And with the right software support, an adviser can concentrate on the most important thing: the customer! A financial services provider can then develop unique selling points that go over and above the standardised rules.

That may sound a little trivial. Many advisers already base their approach on models like advisory process topic pyramids.

Olaf Kerls: It’s less about checking off individual topics one after the other, and more about a comprehensive, integrated analysis. With software tools based on algorithms, customers and advisers can develop an accurate picture of the situation and set the right priorities, so that the customer can make the most of their financial resources in the long term.

Nils, we have already implemented the predecessor of DIN 77230, the DIN SPEC 77222, as Standardised Financial Analysis within our solution for advisers Financial Advisory Workbench. How does the standard differ from the specification?

Nils Ciach: Unlike a complete DIN standardisation process, a specification can be approved by a small number of people, and implemented quickly. For a standard, industry representatives, scientists, environmental and consumer organisations all have to reach a consensus. As a result, consumers can rely on certain standards if they have been analysed according to the DIN process. Financial services providers also have the option to have their processes certified as compliant with the DIN standard. By using software that follows DIN 77230, financial institutions increase confidence and gain a competitive advantage, although I can well imagine the situation will rapidly turn on its head: if the standard is widely implemented, it will become a competitive handicap not to adhere to it when providing advice.

There is also another differentiating feature: in order to profit from applying the rules, advisers need to look at things from the customer’s perspective and breathe life into these rules in their professional practices. Customers must be reminded that they are following a process that was created, among others, by customer stakeholders. Here, the software helps with the goal of making this clear to the customer, and of giving them the feeling that they are the main focus of interest, not the bank’s portfolio.

With our product, Standardised Financial Analysis, our customers should be on the right path for certification. How will you adapt the Financial Advisory Workbench overall to the new guidelines?

Nils Ciach: We will only know to what extent we will need to refine the detail of the processes once the draft standard is published at the end of the month. However, we have had many discussions, and we are assuming that the effort required will be moderate. The standard is likely to follow SPEC 77222 in many of its methodologies. We can make changes to the parts of the solution we have configured ourselves. We are planning an upgrade package for the current version, with its release planned for the autumn this year – in good time for the publication of the finalised DIN following the discussion and objections phase in the summer. This will mean our customers are as well prepared as possible.

What can we offer our customers in detail, Olaf?

Olaf Kerls: We cover a range of different requirements. Firstly, customers receive the financial analysis from us as an integral part of the complete Financial Advisory Workbench. They can also use the financial analysis as a stand-alone advice approach. Then we provide an independent DIN-compliant calculation module for banks who are implementing the user interface themselves. Finally, we have also already developed an approach for do-it-yourself analysis.

Klaus Möller: In my view, this do-it-yourself analysis is a very important component of a sustainable, efficient advisory process. The standardisation of financial analysis is after all aiming for optimal use of digital options. Both in personal conversation and within an online advisory process, customers must be able to rely on consistently high quality. Software can contribute significantly to guiding the process of advising customers and making it water-tight, as the complexity is shifted back, into the solution. At the same time, we can only entrust highly sensitive issues such as financial advice to artificial intelligence if the process is sufficiently regulated.

Nils, how will the market as a whole react to the publication of the document in the autumn?

Nils Ciach: The gain in prestige, growth in transparency while also reducing liability risks are all points in favour of the standard from the banks’ point of view. And it’s exactly what financial tests and test buyers have been waiting for. Regardless of whether financial institutions claim to be similar to the standard, they provide the testers with a “menu” that allows them to easily determine whether a bank – as represented by the adviser – has a complete, wholesome selection on offer.

The first movers will certainly gain a competitive edge by using DIN-tested and certified software. However, DIN 77230 should quickly become a hygiene factor. We have the means to support financial services providers of all sizes to rapidly adapt their advisory processes. Although the regulation applies in the German market, we have already started discussions about this with financial services providers in Austria and Switzerland. If you give good advice, you want people to know about it. We’re getting the ball rolling. But ultimately the advisers have to score the first goal.

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