To UK investment management firms, the European Union is where the action is. Events both at home an...
To UK investment management firms, the European Union is where the action is. Events both at home and on the Continent are generating new opportunities for marketing funds across the English Channel, demonstrating that the EU is where the greatest potential for asset growth lies
This new focus on continental Europe is fostering heightened interest in e-commerce, and pulling the EU toward an impending explosion in electronic financial services. To keep pace, investment management firms will need to undertake a thorough re-assessment of the business they are in. Any firm that does not appreciate the breathtaking speed with which things are already hanging, or has not begun to get a sense of the radical nature of the changes, needs to move very fast
The appeal of a European connection to UK money managers is due largely to the arrival of the euro as the new European currency. After years of political debate and testing, the euro has set the stage for a truly pan-European financial marketplace. Its arrival has, in turn, spurred rapid moves to link the trading and settlement capabilities of a number of European stock exchanges
The UK's securities settlement system (CREST), Germany's Deutsche Bourse Clearing, and other members of the European Central Securities Depositories Association have already announced plans, and others are actively being negotiated. All of this makes doing business across the EU a far more efficient and cost-effective process today
UK managers are also motivated by a loosening of unit trust regulations to allow for Open Ended Investment Companies (Oeics). Traditionally the UK's mutual fund business has been built based on unit trusts sold by specialist unit trust companies
These open ended legal trusts are widely understood in the UK. Europeans, however, are more used to open ended investment companies, known as Sicavs, which are sold through banks. Now that Oeics are approved, a number of UK managers have recently converted their unit trusts with many more expected to follow. One, Threadneedle, recently announced that it has solmore than E140m of its funds into Germany within eight months
In the UK, the unit trust industry has long recognised the need to address the inefficiencies in its distribution of funds. Most buys and sells, whether direct from investors or from intermediaries, are placed by telephone or fax and records of the transactions are kept on paper. An industry sponsored project is currently underway to deliver an e-commerce solution, initially for intermediaries. It will be similar in some respects to the National Securities Clearing Corporation (NSCC) in the US. The first version of this will provide a single network through which intermediaries can place buy, sell and switch orders with any participating fund manager. Members of CREST will also be able to route payments electronically
Soon after, it is planned to offer fund valuations and intermediary commission statements the same way. This initiative will be helped along by the replacement of the UK's tax efficient funds wrapper, the Personal Equity Plan (Pep), by the Individual Savings Account (Isa
The important feature of the Isa is that it permits applications to be made electronically for the first time. This is the first tangible indication in the financial services sector of the UK Government's stated desire to facilitate the growth of e-commerce, for example, by supporting the development of digital signatures. A little further off, stakeholder pensions are on the horizon too. For these, an electronic delivery capability is likely to be necessary to keep distribution and maintenance costs down
Thirst for knowledge
But the real force behind the development of e-commerce in European financial services will come from the marketplace. There is no doubt that consumers' thirst for knowledge is increasing and they are becoming better educated. They are also more demanding, choosier, more astute about value, more critical of cost, and more fickle with their loyalty
In short, technological changes are shifting all the power to the consumer. In an e-commerce world the customer is king, and the challenge for any organisation doing business will be to win their loyalty
You only have to spend a short while exploring the web to be dazzled by the speed with which new initiatives are arriving on screen. For example, most investment managers now operate their own web-sites. These vary in design and complexity
Some provide information about the company and their funds, usually with the ability to request or download brochures. Others, for example M&G, Schroders and Société Générale, also post daily prices. The most sophisticated offer an interactive capability and some form of trading for registered users. Fidelity and Flemings are among these. Financial advisers, such as Sedgwicks, and brokers, such as Charles Schwab Europe, are also rapidly developing a Web presence, the latter with online trading
Computing power and speed combined with the development of internet programming standards are at the core of the evolution of e-commerce. These have together worked to provide us with the communication capacity, or bandwidth, and processing power to connect, or network, almost anywhere we like almost at will, and transmit large amounts of information
The shift from EDI
These technological developments have been the main cause of the shift from EDI (electronic data interchange) based business-to-business e-commerce to internet or Web-based e-commerce
There are important differences: EDI sets the standards under which an agreed set of messages to support an agreed business process are exchanged between businesses where there is some form of agreement or arrangement to do so, sometimes requiring transactions to be processed through a 'hub'. Internet or web-based e-commerce does not require there to be a pre-existing busine
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