Electronic fund trader EMX needs to take a long, hard look at its charging structure, argues Dave Ferguson, chief executive of Nucleus Financial Group
While I probably spend most of my RealAdviser column inches taking a swipe at the life and pensions sector for its legacy business model and hopeless inefficiency, it is of course not the only component of the value chain that can be charged with failing customers, one way or another.
As we put the final building blocks of Nucleus together, it seems a good time to reflect on one of the more stunning observations I have made along our journey - and, believe me, this is just one observation in a very long list. There really is so much to be done to build an efficient, transparent and unconstrained market the UK can be proud of.
One of the strongest lessons I have taken from the build of Nucleus has been the less than progressive practices associated with the trading of unit trusts and Oeics. Now, while I was aware this was a less than straight-through processing market, I was quite taken aback by the impact of costs, particularly those associated with what I thought was a very electronic business, EMX.
Now, call me an old trout, but how on earth can it cost more than a London underground day travelcard to pass an instruction to buy or sell some units in a fund? Can it really be that one can rack up a decent takeaway sandwich and a smoothie for less than it might cost to invest one month's Isa contribution? Is someone perhaps guilty of having the occasional free lunch? It seems EMX is more over-priced than the sugar-coated almonds in a Bond Street sweetie emporium.
So, pop quiz. In whose interests can it be for EMX's charges to remain so high? Could it be (a) the consumer, (b) the broader asset management community or (c) EMX shareholders? I have no desire to explore the parties that constitute (c) as I am sure readers will be entirely appraised, but I do have an interest in understanding why an EMX trading message costs up to 100 times that of the non-profit-making Swift alternative. Not only that, to be a member of EMX asset management groups are required to pay an annual subscription that I understand is way in excess of that required to be a participant in Swift.
Now, while EMX has reached critical mass and is doubtless to be commended for its commitment to technologising the retail asset management community, it feels like the original EMX model has been superseded by fund supermarkets and wraps.
My recollection is that EMX was established to allow individual advisers to pass single trades on behalf of clients rather than facilitate large-scale aggregated trades between two institutions. There seems little doubt the market has moved on but EMX has not really moved with it - at least, not in commercial terms.
Ultimately there is nothing more destructive to value than a cartel or monopoly-like situation and I am genuinely concerned the parties controlling EMX are deriving a painfully full margin for providing what should be a very commoditised service. I would be most interested to know how the interests of EMX can be aligned with those of its users when it is charging quite so much for its services.
I have said this before - and I will doubtless utter it again - but there is no doubt in my mind it is the (better) adviser and the client who should control the retail market, as the adviser is providing direction for the client's capital.
Any suppliers of services to these parties, such as wrap platforms, tax wrapper providers, asset managers or stockbrokers, should be measured according to the value for money on offer in relation to the service being provided. That is, after all, how a proper market functions, rather than by concealing sometimes significant margins inside an accident of history.
In general terms, the UK financial services industry has performed dismally in the key area of technology and it strikes me that dealing in mutual funds is just one more area in which there is room for considerable improvement - given the will of the key participants.
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