Regulatory and price pressures have the investment industry in a vice grip, forcing reviews of back-...
Regulatory and price pressures have the investment industry in a vice grip, forcing reviews of back-office systems and squeezing slow-movers out.
Stakeholder pensions, with charges capped at 1%, are just the thin edge of the wedge. In October, the Government reiterated its commitment to a suite of such low-cost products.
Financial Secretary to the Treasury Ruth Kelly told delegates at a recent seminar that draft stakeholder product specifications should be available by January for consultation. But she supported the administrative charge ceiling in principle.
She said: 'Ron [Sandler]'s conclusion is that a price cap is essential. He says that 1% is the right place to start. We agree. The stakeholder and Cat-marks price caps have had a very positive effect on the market and have delivered a better deal for consumers.
'Many of you will have views on the level of any cap. However, without concrete proposals for product specifications and for the sales regime, debate is pretty academic.'
So low-cost products are here to stay. The winning firms will be those that use technology to help address price pressures and regulatory issues before it is too late.
My company, Sterling, an IFA-only brand in the Zurich Financial Services (ZFS) group, for example, is overhauling its administrative infrastructure and using electronic trading of unit trusts to help cut costs.
Specifically, Sandler's review heralds downward price pressure. So we know we have to plan ahead to protect margins by cutting costs. Like any other major player in the savings and investment market we need to write business profitably so we can invest in attractive new products.
Our Isa offers investors access to 76 funds through 19 fund managers. With about 3,000 deals a month, keeping control of client money and translating it into external investments is a key part of administration and therefore of business costs.
The key to reducing those costs is technology. Cue EMX, the electronic trading platform for unit trusts, which was launched in June 2000. EMX essentially enables intermediaries to buy and sell unit trusts electronically from providers.
We have the system to produce all the information and then we plug into EMX, which fires off the data to fund managers. There are no big overheads and it brings speed and accuracy.
Among its users, EMX currently boasts 70 intermediaries, 25 product providers and several third-party administrators and consolidators. But to get the maximum benefits, it is important to have as many players on board as possible. To that end, product providers will increasingly find themselves under pressure from intermediaries to get connected. Dealing with fund managers not linked to EMX is more expensive and resource-heavy.
We have only recently begun to use EMX but I expect the messaging service will almost halve dealing costs. Savings will increase further when we adopt a more automated EMX solution that sends and receives messages in one electronic hit.
Some of the planned features are also going to benefit our business. For instance users will soon be able to get transaction histories from fund managers, including registration details. This new functionality will be a major boon for unit reconciliation.
David Spurling is a project manager at Sterling Isa Managers
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