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Back in the running

Ian McKennaL ast year, this column looked at the lead that the majority of life and pension providers have achieved in e-commerce services compared with most of their peers in the fund management industry.

This will be brought into sharp focus in next week’s MM when the e-Excellence ratings are announced for the fund management community in a dedicated supplement. This may make less than comfortable reading for many fund management groups.

I was therefore encouraged to see the Investment Management Association announce its fund processing principles this week. These identify changes in admin-istration processes that the IMA board is recommending its members and service providers to put in place. The IMA believes it has identified changes where any associated costs will be outweighed by savings in operational costs.

The objective is to have these processes implemented during 2008. As an industry-wide strategy, this timetable is challenging but realistic. It is hard to think of the whole industry changing in less than two to three years, yet people need to plan now if they are to achieve such a timetable. There are, however, initiatives already in the market that could see some organisations achieve many of the benefits long before this.

The IMA has consulted widely with interested parties, including fund managers, their third-party administrators and IFAs via an active dialogue with Adviser Forum.

Among the principles are many issues that IFAs will be pleased are being recognised, not least the use of electronic messaging, as far as is practic-able, for all communications with client-side organi-sations. With more advisers moving from a sales-driven, commission-based model to a service-led, trail comm-ission or fee-based approach, client manage-ment systems are increasingly at the heart of advisers’ businesses.

Failure to adopt tech- nology in a fee-based environment must lead to additional and unnecessary cost to clients. All too often, valuation and holdings information has to be obtained by phone or post. This is an unacceptable expense for advisers. By delivering this information electronically, it can be processed via adviser’s client-management software, with savings for all involved. It is also proposed that reference information relating to units and share classes should be available in a standardised format.

The proposal that providers should adopt a consistent approach to account opening will be popular. I hope this allows fund managers to maintain their own account references for the lifetime of a contract rather than changing them frequently.

It is planned that international standards’ identifiers should be adopted for all funds. This should reduce the problems with increasing frequency, where funds do not use one of the various fund identifiers that are being used in the industry. This can make it difficult for advisers to automate monitoring the performance of such funds. However, it will be important to ensure that no licence costs are incurred by advisers for the use of these identifiers in their own systems.

The FPP also says that electronic orders should be confirmed as soon as possible, with order confirmation being sent no later than overnight following the valuation point. Such confirmation should include the client and the fund manager reference numbers. This will help establish the adviser’s electronic record of the contract and obtain any supplementary servicing information by messaging in the future.

It also plans to investigate how payment mechanisms can be more electronic and, wherever possible, cheques removed from the process.

On the issue of standards, the IMA has recognised the benefits of standards’ interoperability, without mandating a specific standard. Director of regulation, operation and taxation Julie Patterson says: “We concluded that the single-standard ideal would not be feasible for the whole market at the present time.”

This appears to be a far more mature approach than the standards’ dogma advocated by Origo for the life and pension community.

The IMA is encouraging movement towards ISO-compliant messaging standards. It recognised that much has already been achieved using proprietary messages, such as those from EMX which enable fund managers to put electronic trading in place.

Several third-party administrators have already developed internet-based front-end solutions that could easily be adapted for messaging-based communications, with messaging hubs that are increasingly being used by IFA client-management systems, without the need to rebuild systems around the ISO standards.

In November, I chaired an Adviser Forum meeting involving most of the fund management third-party administrators and IFA software providers, which looked at how information delivery to the adviser sector could be put in place quickly and efficiently. It was clear that many of the mechanisms are already in place and that the cost of connecting these need not be excessive.

In taking a pragmatic approach to standards, the IMA is demonstrating how it can get the best of both worlds where it can achieve the benefits of using industry standards, without the standards’ process becoming a constraint on innovation or on the ability of different industry sectors to trade.

IMA senior technical adviser David Broadway says: “It is not for us to tell distributors which technology or standards they should use, the important thing is to deliver services that can lead to a more efficient marketplace. Our members need to trade with retail, institutional and a range of other distributors, so the solution must provide interoperability with the different systems used in each of these areas.”

The IMA is providing valuable leadership in recognising the elements needed within a robust e-commerce infrastructure for their industry. It is now up to individual fund management providers and their third-party administrators to deliver on the needs identified.

Given the pragmatic approach taken by the IMA, it should be possible for at least some of its members to catch up with, if not overtake, their life and pension peers in the near future.

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