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EMX evaluated

It would be fair to say that over the last year or so I have been far from enthusiastic about Autif&#39s electronic trading platform EMX that went live two weeks ago. Lots of statements are made about electronic trading platforms in the development stages but it is what is delivered that matters.

The actual launch of the service provides an ideal opportunity to take a fresh look at EMX and put to one side any views that may have been reached in the past. It is now possible to compare the service against its peers in thecold light of day.

EMX describes itself as an electronic message exchange which facilitates intermediaries buying and selling investment fund products from product providers and an electronic client valuation system.

I understand its aim is to provide a common trading platform for the managed funds industry.

The delivery of such a service appears long overdue, given that it is nearly a decade since the life and pension industry sought to establish a similar degree of connectivity within their market.

Having proceeded with a single industry model for some six years, the life and pension market has moved away from such an approach and is now actively encouraging competing services in its market.

This happened as a result of a mixture of pressure from the European competitionregulators and recognition that seeking to get multiple product providers co-operatingover the development of oneplatform while an excellenttheory did not in practicedevelop the most suitablesolution. The equivalent initiative by the Council of Mortgage Lenders in the homeloan market also met an early demise as a result of the difficulties of creating common priorities across all lenders.

At launch, according to a recent news story in Money Marketing, the EMX service had only 10 adviser firmsparticipating.

By comparison, Misys which recently launched its service to IFAs, while not providing any specific figures on the number of users, says several hundred IFAs have already signed up with it.

Some of the more established service providers already have far higher penetration, with both AssureSoft and Synaptic claiming over 7,000 registered individuals using their service and The Exchange with over 13,000 users. None of these services hasintegrated with EMX at launch.

The costs of joining the service vary depending on the size of firm, with joining fees starting from £500 for small IFAs, for which they are allowed to carry out buys, sells and switches free of charge and get an allowance of 1,000 “free” valuations a year, after which valuations are charged at 80p per message.

Firms joining at EMX&#39s intermediate “frequent dealer” tariff have to pay both a joining fee of £5,000 and an annual fee of £5,000. This includes 5,000 valuations without additional charge, after which they pay 51p each. The highest tariff requires an initial fee of £13,000, again with an annual fee of £13,000. This delivers an allowance of 15,000 valuation messages a year before having to pay an additional 12p per valuation.

These costs are far higher than any levied by comparable systems in the life and pension market, the vast majority of which are, in fact, free to the IFAs and none of which require the adviser to pay a per transaction fee.

Even though a new user could be faced with an initial charge for joining of up to £26,000 (£13,000 joining fee and £13,000 annual, although the annual fee can be paid quarterly), they are an improvement on the original tariff where buy, sell and switches would also have counted towards the “free” transaction allowance and would havehad to be paid for in a similar fashion to valuations. This concession was announced in the spring when the per-message fees reduced to valuations only.

To my knowledge, thereare no other initiatives in the life, pension or managed fund markets from either a service provider or product provider that makes transaction-based charges to advisers for theuse of services.

By comparison with the charges to IFAs, Autif members benefit from having the £75,000 joining fee waived although they do pay message charges at the same level as the IFAs depending on the extent of their use.

The hardware platform required to operate the service is relatively modest, requiring only a P166 processor. However, it does require theinstallation of a minimum of Windows 98. In addition, the latest version 5.01 of Microsoft&#39s Internet Explorer browser is required because theservice uses 128-bit encryp-tion security. Any advisers using Windows 95 should factor the cost of an upgrade into their calculations

Although EMX aims to be a common trading platform for the managed funds market, alternatives are emerging. Cap Gemini has announ- ced a consortium, including Microsoft, AssureSoft and Interactive Investor with the support of a number of fund managers and third-party administrators, aiming to deliver similar services but with no charges to advisers.

I have looked afresh at the actuality of what has been delivered and recognising that some elements such as the free orders are an improvement on the original proposals. However, the overallcosts to advisers are far too high for a service which should deliver major savings to product providers.

Technology services have the potential to cut costs for everyone who uses them but extensive studies have shown that the lion&#39s share of thesavings accrue to product providers.

On this basis, I believe the charging structure should be reviewed further and moved to a model where all services are free to IFAs.

I have no doubt that in practice this would encourage far faster adoption of such a service and fund managers would save more money more quickly.

If the service is widely adopted based on its curr-ent charges, there must beevery chance that organisations which provide similar services free of charge will take this as evidence that IFAs are prepared to pay for such facilities and may seek to introduce charges where they do not currently exist.

This cannot be in the interests of IFAs or their clients in any circumstances.


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