Why is a change required when the industry has shown it can do the job?
Rightly, there seems to be universal demand for faster transfers between investment platforms when consumers want to switch. The FCA has made it clear it expects this to happen and if it doesn’t, platforms could be facing penalties. In its Investment Platforms Market Study, the FCA put a lot of faith in the new Star initiative but, based on recently published data, I think the regulator may be backing the wrong horse. In so doing, it may slow down progress in this area further.
Last month, Origo published performance data on 27 of 100-plus pension providers who are using the Origo Transfer service, formerly known as Origo Options.
The full paper can be found here.
While little more than a quarter of the firms use the service, collectively they account for more than 80 per cent of the 571,668 transfers involving £30bn in funds processed via the system between April 2018 and March 2019.
Noticeably, there appears no pattern suggesting Origo shareholders use the system better than others. Indeed, some of those achieving the best processing times are firms very much outside the constituency normally associated with Origo.
While the average transfer via the system took 9.3 days, falling to 8.1 days for simple transfers, the best performers achieved 5.0 and 3.8 days on average. How does this compare with traditional platform transfers?
While there is clearly room for improvement, several companies are achieving sub-five-day transfers, which shows what can be achieved.
Against this background, I am confused as to why many in the industry are advocating the need for a new set of services/standards via the Star initiative.
I’m not known for being the biggest fan of either Origo or the Association of British Insurers, who the group worked with to build the service in the first place, but credit must be given where it is due.
I understand typically 70 per cent of the money involved in platform-to-platform transfers involves defined contribution pensions that can already be transferred via Options. So why then do we need a new service to be invented under the auspices of the Star group?
Would it not make more sense to extend the existing Options service to address the full range of platform assets? Why invent a new wheel when a current one is in place delivering significant value?
Just to complicate things further, this new Star initiative is at least partly the creation of Criterion, which in turn is a subsidiary of Origo. Something just does not make sense to me in all this. There seem to be far too many parties at this table, all of whom will doubtless want a slice of the cake. Who is going to pay for all this? Ultimately, it is bound to be the customer.
You don’t have to be a rocket scientist to see that if Options was extended into a full platform transfer service, it could then leverage its new integration hub – about which I am also picking up some positive feedback – to deliver reporting and other data into advisers’ technology systems of choice, be they practice management systems, portfolio construction and optimisation tools, goal- or cashflow-based planning tools, or a range of other options.
Not only does Origo have a working pension transfer service, it has the right pipes to deliver the data to where it is needed, advisers and consumers.
Since it was launched in 2008, the service has processed more than 3.5 million transfers, to a total value of around £175bn. Origo believes that on average, each transfer saves £170 compared with traditional methods.
So, in just over a decade, the service has saved the industry around £600m in costs. This sounds like a track record that justifies further investment.
Conversely, I hear from people present at a recent Star event in London that it was something of a farce, with a definite lack of clarity on what would be delivered when.
Rather than initiating another self-serving quango-type operation, which at least for the next couple of years looks far more likely to slow things down than accelerate them, why not take the path most likely to quickly deliver consumer benefits? Of course, it would be good to see competition in this space, but consumers must be put first.
The cynic in me wonders whether Star is being set up as the vehicle to facilitate further industry prevarication.
Forming a committee, getting everyone around the table and letting them all express their views can be a great way of making sure nothing meaningful happens.
Doubtless, people will say they tried hard, but it just could not happen fast enough.
If I were a platform chief executive wanting to avoid the wrath of Chris Woolard and his colleagues at the FCA, I would get people talking to Origo as a priority, to see how to extend the service that already works for pension transfers into a full platform transfer service, before the regulator revisits the subject next year.
If other platform providers still want to press ahead with Star at the same time, they can do so.
Perhaps in a few years’ time it might deliver something meaningful, but it is probably not the best way to meet the FCA requirement for prompt action.
Ian McKenna is director of the Financial Technology Research Centre