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Mandate with destiny

In the past few months, we have seen incredible change and consolidation among the leading IFA portal players, with Assureweb now part of Misys and Exchange FS integrated into Marlborough Stirling.

At the same time, rival offerings from Synaptic, Bankhall (IFA Engine) and Webline all appear to be making significant inroads into a market previously dominated by one leading player.

With many of these technology players linked to or owned by powerful IFA distribution channels, much speculation has begun on the relative market share each will ultimately take.

Recently, it has been reported that all DBS members will now have to sign up to Assureweb from April 2002 as part of the network&#39s minimum technology requirements and all communication between members and the network will be by email.

As a consequence, nearly 3,000 DBS members will have to become registered users of Assure-web. So what about the thousands of members of Misys&#39 other networks?

In a similar vein, following the launch of its own IFA Engine portal solution, Bankhall Investment Associates has chosen to restrict initial access only to IFA firms in the Bank-hall group of companies but openly admits that it expects many of its members to use competitive solutions as well.

The possibility that the big networks will obligate their members to use particular software and technology solutions (mand- ating) is an area of intense industry interest – one which gives rise to some passionate opinions.

An example of this comes from a member of the Misys group (Country-wide Network), Tim Ames, director of Cathedral Fin-ancial Management. He says: “If Misys mandated technology, about 50 per cent of the membership would reject it and leave, mainly on the basis of the costs of Mi-solutions, the fact that it is cumbersome to use, thus making the sales process and admin less efficient, and the lack of integration it offers with back-office software.

“I also think the loss of independence and concerns over &#39big brother&#39 would be factors in this. If it was forced upon us, I would leave the network.”

A directly regulated IFA firm, Overy & Booth, has clear views on the matter, as its senior adviser, Paul Keating, explains: ” I am not sure the prescribed use of portals could be easily achieved. While there would be savings in admin and training, it could be seen by members as compromising independence.

“The same applies to point of sale and needs&#39analysis software. New systems are being developed constantly and I do not believe members would appreciate being stopped from using a system purely because it does not fit in with the network&#39s IT strategy.”

For those technology and software suppliers which do not have natural links with major distributors, the threat of technology mandates is a very real one, particularly as it may well lead to distortion of competition within the industry.

Once an IFA firm has invested in a particular company&#39s systems, the compatibility between these systems and new market offerings may well not exist, causing some firms to be faced with significant cost increases in retraining and rebuilding admin systems.

This is a real problem for many IFA firms which have already faced such a situation and many argue that the only way they could accept mandating would be on a “no-cost” basis, where the network would inevitably have to pick up any additional investment required.

The Exchange FS agrees, arguing that the independence that its organisation has is vital to the maintenance of a fair market and ultimately for the good of the IFA.

Exchange FS director of product marketing Chris Baker says: “We do not believe mandating technology is in the best interests of IFAs. The Exchange remains an independent technology provider and we feel this independence from distribution is important for the financial services industry.

“We aim to be the technology supplier of choice for IFAs rather than owning them and forcing them to use our services.”

But the arguments in favour of mandating technology seem to have more credence than ever before.

As part of the new N2 regime, the FSA will look at all aspects of a firm&#39s business that can impose a risk to its regulated activities, including IT systems and business strategy. An ongoing programme for review and monitoring of systems and controls needs to be put in place to ensure their ongoing integrity.

These new regulations, bringing with them additional costs, risks and admin, could provide a strong argument towards the risk-reduction and enhanced efficiency that could come from greater mandating or, at least, greater streamlining of systems.

Origo, the organisation responsible for defining technology standards across the industry, seems to agree. E-commerce director Paul Pettitt explains: “Within the IFA sector, compliance is becoming an increasingly complex and bigger area of responsibility, with networks particularly likely to use common technology solutions to help their membership.

“From an Origo standards&#39 perspective, whether technology is mandated or not is really not relevant – standards help with the transaction process but not the compliance process.

“But we can see how selling from panels would be enhanced with mandated technology, especially as it could be helpful in producing the audit trails which compliance people need. Products such as Synaptic&#39s Research Professional is an excellent example of this.”

DBS says its recent decision to ask all member firms to sign up for Assureweb and make all communication email-only will bring financial savings, improve efficiency and give all members online access to information. It says it is taking the lead from the FSA by adopting a risk-based approach.

Pettitt says: “Network members must accept the benefits of less compliance risk and take the mandating of technology as part of this. If Misys decided to adopt a strategy of mandating technology to its members, we would support this on the basis that it would be good if it used common components to bring cost bases down and made savings in areas such as training.

“But if you mandate technology which is not up to date, you have an even bigger problem.”

There is clearly little argument against the simple fact that streamlined and, where possible, automated processes that technology solutions can bring to a business, should assist greatly in reducing both paperwork and human error. Compliance is clearly an area where this is particularly relevant.

Typically, however, the wider the span of control for a firm over its advisers, the more compliance staff are required. Bankhall provides a service to its members where they can remain directly regulated yet still have the benefits of other centralised services associated with networks.

Bankhall managing dir-ector David Warnock seems to agree that mandating technology is not only more likely but inevitable.

He says: “Whether one regards mandating technology as constructive or not, I think there is a feeling of inevitability about this whole area.

“Massive development costs must accrue tangible gains and I think most of the big players have decided that these should be visible sooner rather than later in the current climate.

Reducing the amount of choice that an IFA has in software, while not ideal, is certainly justified if he too is to benefit in the process.”

With so much comment, some of it conflicting and controversial, the topic of mandating technology is one which will grow over the coming months.

Whether the actual mandating takes place, we will have to wait and see but clearly for the future of networks, in particular, it does seem disappointing that the attraction of the network services themselves may not be all that it needed to keep attracting and retaining members.

Surely IFA firms have enough additional burdens ahead to keep their business prosperous without the complications that the “technology war” will bring.


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