The first phrase that comes to mind when I look at the difficulties being experienced by the managed funds industry's struggling e-commerce initiative EMX has to be “I told you so.” Over the last two years, the project has exhibited classic symptoms of a service doomed to failure.
The biggest problem is that the managed funds industry has built a service designed to meet its own perfect vision of how things might work.
This is fine, provided you do not expect anybody to use the results. Only scant attention has been paid to the needs of the intermediary.
It is now suggested that not all the current investors will take up their allocation. On the other hand, a number of big fund managers have made noises about rescuing the system regardless.
This is an interesting debate. Are they going to be sending millions of pounds of shareholders' and policyholders' good money after bad?
What it may come down to is a matter of which is worse – no managed fund electronic trading platform at all or one that is expensive to run and nobody uses?
There is, of course, a third way to modify the service so that it begins to operate in a way that will make intermediaries want to use it. Easy to say, but it will take a great deal to achieve this. To succeed, I believe EMX needs to change its culture and become far more open and accepting of the wider personal finance market.
In the recent past it has tended to replicate the “everyone other than fund managers are a lower form of life” attitude that is not uncommon in the managed funds sector.
It is perhaps not surprising that EMX has not listened to the IFA community when such an attitude is endemic among at least some of its sponsors. The chief operating officer of one major national IFA recently defined the difference between life offices and fund managers as “life offices listen to users, fund managers don't”.
I still clearly remember the first time I was invited out to lunch to discuss EMX some four years ago. One phrase that really stuck in my mind was when I was told “Look, let's face it, three years from now no one is going to do business with life companies anyway.” Well three years came and went and – surprise, surprise – they were wrong.
In addition to a change in attitude, EMX will need to review its position in the market fundamentally. Currently, it is seeking to operate as a trading platform in its own right transmitting messages between intermediaries and fund managers. However, the vast majority of those intermediary firms are IFAs who already have the choice of a number of e-commerce platforms for their life and pensions business. Exchange currently has by far the biggest share of users but AssureWeb, M-Link and Synaptic are all catching up in terms of the breadth of services they offer. They will, in all probability, build up considerable numbers of users in their own right in the future. Even the smallest of these has many thousands of users.
One option that fund managers could have taken would have been to work with these organisations in the first place rather than to develop a separate platform.
The most common argument I have heard in this respect was that it wanted to control who was accessing its back-office systems. I can understand this but I do not see why it is not possible for these messages then to be populated into one or more of the more widely used portals.
This would, of course, result in some duplication of cost but if fund managers want to create their own hub through which to allow access to their systems they have to be prepared to pay for the security that will bring.
Though EMX has consistently chosen to ignore it, masses of work has been done in the life and pensions sector on e-commerce. I have never been able to understand why, with so many fund managers part of life groups, the individual fund management arms have been allowed to continue with an attitude of splendid isolation, supporting EMX when their methods so clearly clash with the overall group e-commerce strategies these offices have been operating.
The failure of EMX to deliver a platform acceptable to the intermediary community (you cannot call less than 50 IFA users nine months after launch anything else) should call time on such isolation.
In my view, life office group chief executives should make any further investment in EMX conditional upon EMX agreeing to work within the existing framework for the creation of XML industry standards via Origo.
This move alone would make a significant difference as it would make it possible for XML messages originated out of EMX to be used side by side with the emerging online valuation services that the portals are developing to deliver valuation messages from life companies. All the major portals support these standards.
It is important at this stage not to focus on the failure that is EMX today but to look at what can be done to make it a worthwhile service in the future. This must mean an end to its isolationist stance. EMX should embrace the existing successful players in the personal finance e-commerce environment rather than seeking to compete with them.
As an industry-owned initiative, which also acts as a standards body, the current EMX structure looks frighteningly close to the structure that the life industry was told was anti-competitive, thus forcing the original sale of The Exchange to its management.
I can only assume that the only reason no one has tried complaining to the EU – as happened in the case of the life industry – is that, given the lack of success, it is not considered worth the effort.
I believe EMX should be maintained, at the very least, until alternative ways of delivering electronic trading to the managed funds industry can be put in place.
If they have the ability to communicate with fund manager's systems, this has value but should be used in partnership with those who have access to IFA desktops, the established portals.
This will create a duplication of cost as the portals will reasonably expect to be paid for doing something that EMX has clearly demonstrated it is incapable of.
This may need to be a short-term solution, until such time as fund managers can establish secure systems to communicate with the portals direct. In the meantime, the challenge would be for EMX to find a way to demonstrate that it can add sufficient value to justify its continued long-term existence.
