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Getting the message on re-registration

Re-registration of assets has been the engine of much of the growth of fund supermarkets and wrap accounts for several years.

Conservatively, this has been the mechanism by which most platforms have attracted at least 50 per cent of their current assets.

This is not, however, an easy process and while there are considerable benefits to both adviser and client in consolidating assets on to a single platform the work involved for the organisation to which the assets are being transferred is significant.

For a long time, advisers have been pressing not just for simplification of the processes by which assets can be transferred from individual holding to a consolidated environment, but also for the establishment of so-called platform to platform re-registration processes.

With an increasing number of new entrants emerging in the wrap market, it must be unlikely that all can succeed. Sooner or later, we will see organisations, at the very least, making an orderly exit when they decide that they are not going to achieve their original objectives.

American Express did exactly this last year and although it is generally accepted within the market that this did not cause a major problem as the amount of assets on its platform was limited, imagine what would happen if a bigger organisation decided it was not going to achieve critical mass.

Worse still, with an increasing number of niche players emerging, the financial failure of a wrap platform cannot be beyond the bounds of possibility.

In either scenario, the industry will need an effective process to make sure that customers’ assets, which should, of course, be ringfenced by the custodian so they do not become embroiled in any wider dispute over ownership, can be quickly transferred to another platform with the minimum of inconvenience.

There has been a perception among many people in the industry that previously some of the bigger fund supermarket players were reluctant to see the establishment of platform to platform re-registration services. Based on my own experiences recently, this is no longer the case.

During the last six months, the Adviser Forum wrap group has been working with a number of major IFAs and other industry players to identify what needs to be done to put in place vastly more efficient processes for individual to platform and platform to platform re-registrations.

This looks at how the improved processes might work in practice from the adviser perspective and builds on work that is already under way by the UK platform committee.

To achieve a truly automated process for re-registration and ideally one that involves little or no paper, it is necessary for certain changes to be made to legislation.

I understand that the Investment Management Association has been in discussions with Government and the Treasury for several years and that, of late, things are looking positive, with conversations actually getting to how the changes might take place.

The net effect of these discussions looks likely to be a far more customer-friendly process for all type of re-registration (for both scenarios – individual holding to platform and platform to platform) could be practical from the first quarter of 2008. To take advantage of such a process, individual fund management groups will need to enhance the way they work.

To make this a reality, it will be necessary for fund management groups to have implemented the necessary re-registration messaging services within their systems.

These are based on the IMA’s fund processing principles which were announced in January last year (see Back in the running, Money Marketing January 19, 2006, p42 or search under this title and issue date at moneymarketing.co.uk).

I believe the majority of fund managers are planning on adopting the ISO20022 standard messages and the IMA tells me that the messages for unit trusts and Oeics have passed the full ISO process.

At the same time, there are “candidate” messages for Pep and Isa transfer which means that while the messages have been proposed by the Society for Worldwide Interbank Financial Telecommunication, the final approval process has not been completed.

As an alternative, EMX has also developed its message suite based on the existing ISO15022 message standard, so this is potentially an alternative for fund managers that do not want to go down the Swift route.

If we are going to make this more efficient re-registration a reality, it is essential that fund management groups arrange for their third part administrators to upgrade their systems to deliver the appropriate functionality.

It is my understanding that the majority of the bigger TPAs have the ability to deliver this but to have a reasonable expectation of doing so by the first quarter of 2008, they will need to start to receive firm instructions to carry out the necessary development within the next few months.

This makes it essential that fund management groups which want to help advisers trade efficiently and remove costs for consumers and advisers bring such implementation to the top of their development agendas.

The big IFA firms within Adviser Forum have asked Financial Technology Research Centre to carry out a study to identify which fund management groups have set specific implementation dates for the new messages.

Based on the results of this analysis, it is my understand-ing that a number of these IFA anticipate talking to fund management groups to stress that the ability to support re-registration messaging using either the ISO15022 or ISO20022 options is likely to be among their panel appointment criteria for 2008.

In the event of fund management groups not being able to process business using these messages, it may be necessary for advisers to make additional charges to clients where these funds are selected.

Only a few years ago, t would have been inconceivable that advisers would look to impose additional charges on clients because of the inefficiencies of a provider but fund managers need to recognise there is a new breed of people running adviser businesses today.

The FSA has pointed out that adviser businesses need to run more profitably and it seems that advisers are listening, though this will mean that fund management groups who do not make the right investment in systems are likely to see a significant downturn in their business volumes.

Readers wanting to discuss any of the issues raised above can contact Ian McKenna on 020 7863 0863 or at ian.mckenna@ftrc.co.uk

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