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EMX success may lie in IFAs&#39 hands

EMX has had a troubled few months. Since its launch in June, trading volumes have been well below expectations, while many of those that have used the service have complained of impracticalities and slow processing.

One of the biggest disadvantages has been the insufficient range of fund managers EMX has on board. It currently has about 20 providers online but to be a fully effective service it needs to have many more.

With names such as Jup iter and Chase Fleming missing from the platform, many IFAs have understandably been reluctant to join.

But perhaps EMX&#39s bigg est setback came from its decision to charge IFAs for the service – a decision it is set to reverse. Having run into financial difficulties, EMX has been forced to rethink its business strategy, starting with a new fundraising initiative.

Financial Technology Cen tre director and Money Mark eting correspondent Ian Mc Kenna believes making the service free to IFAs may be the turning point in the project and lead to its success. He says: “The biggest single objection has been the question of charging IFAs. There are substantial benefits through using EMX for IFAs. But the benefits for fund managers are substantially greater and they need to realise that.

“I would be totally supportive of a move to make the service free . It will certainly give EMX a better chance of success. But while changing their business model can remove the biggest single hurdle, they will need to back that up with other developments. Their success is in their own hands.”

Having asked the industry for financial aid, four of the UK&#39s biggest fund managers came to EMX&#39s rescue. Inv esco, Threadneedle, M&G and Fidelity have each agreed to pay £163;300,000 to tie the business over until next year. EMX is then planning a rights issue for January or February to raise £163;6m.

Chairman Nicholas Dur lacher says: “The EMXCo operating platform was developed and delivered on time and well within budget. The preliminary funding had been planned to take the company to launch in June. The software has been tested, proven to be robust and enhancements are being delivered and rolled out. Its reliability is impressive. We have had 99.2 per cent system availability since going live in June.

“A second round of funding was always part of our plans. However, we had not expected to need the interim funding that we have now arranged. Electronic trading has not taken off as quickly as the industry predicted last year. As a result, although trading volumes through EMX are on an upward trend, they are lower than we exp ected. As EMX&#39s revenues depend to a large extent on trading volumes, we have not met the revenue projections anticipated in our business plan.”

EMX is now taking a more realistic view of its profit expectations. It says it will be profitable by 2003, having previously estimating that it would be in the black by early next year. Despite the upheaval and restructure of the business, its main shareholders are still asserting their confidence in EMX.

Fidelity chief financial officer Simon Haslam says: “Fid elity continues to believe the EMX platform offers the most attractive means to grow the funds industry in the UK both through IFAs and other traditional channels as well as through the new funds supermarkets.

“We believe co-operative ownership of EMX by the industry for the benefit of providers and their intermediary partners is the best way to develop its services and ens ure EMX can maintain the highest standards of customer service for the benefit of investors across the UK.

“We are therefore committed, along with M&G, Inv esco and Threadneedle, to extending our financial support for EMX to ensure its continued development thr ough to profitability.”

Invesco chief executive of UK retail business Mike Webb says: “EMX should be seen as a crucial industry initiative in the move to electronic trading and the shift to delivering low-cost, efficient, straight through processing between provider and distribution. A failure to recognise the importance of EMX will lead to a proliferation of messaging standards and huge future development costs in IT alone as we move forward.

If we can create &#39EMX inside&#39, the industry can move forward quickly.”

Making the service free to IFAs is more than likely to be the key to success. Although IFA costs were relatively low, they were enough to discourage most IFAs from trying the system.

Of those that have used it, there are mixed opinions. But the optimists believe that, despite its teething problems, it has all the ingredients of a useful platform which is set to make the lives of IFAs and fund providers easier.

John Scott & Partners was one of the first IFAs to sign up to the service in June. On the whole, it has been happy with the platform.

Investment dir ector Clive Hales says: “Our experience with EMX is that it has had teething problems but they have not been hugely problematical. It is far quicker and saves us a lot of time.”

With a more realistic strategy and some high-profile backers to help it through a difficult financial period, EMX&#39s future is looking surer.

Durlacher says: “Everyone in the industry understands the case for electronic trading. That case remains. The difference is that there is a solution so it can deliver everything that the industry needs. No other electronic solution exists.”

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