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Monopoly dice are weighted against life offices

I have been rather amused by the recent spat between life offices, EMX and the British Accounting Soft ware Devel opers&#39 Association over data standards for the transmission of electronic payment messages for stakehol der pensions.

As I see it, what has happened is that a number of software organisations have got together and decided stake holder could benefit from such a service paid for by insurers.

I can see why such a serv ice would be advantageous but where I get confused is that a number of those inv olved have been suggesting there should be only one such system. At this point, understandably in my view, insurers have balked.

There have been various assurances from those who want to provide the service that it will really be very cheap (“Honest, guv”), with modest figures being floated for the cost of pilot systems.

The problem is that, once you have created a service that provides the only means of obtaining information electronically and, thus, making con sideration savings, one would need the morality of a saint not to be tempted to inc rease the cost of the service, just a bit, then a bit more. Bef ore you know it, costs could tot ally unrelated to the numbers currently doing the rounds.

Of course, if you are the only service available, what option do insurers have but to cough up?

It only takes a brief look at recent research on the profit ability of stakeholder to recognise what a stranglehold any monopoly of this type would have. It is now fairly widely rec ognised that the break-even date for stakeholder plans operated in a conventional paper-based manner is around 10 years. Make full use of e-commerce and this could be reduced to as few as three years of loss before moving into profit.

Many life offices have alr eady created systems over the past few years that allow them to extract payroll data from the vast majority of software systems. While an industry standard is desirable and central clearing office-type solutions for payments could make things easier, it is going to be hard enough to get most emp loyers to put one stakeholder arrangement in place, never mind worrying about the complexities that will present themselves when employers are operating multiple stakeholders. The real need for this type of service is probably still at least 18 months away.

I am a firm believer in a 1 per cent world. If executed correctly, we can have a better financial services market where millions more people benefit from products that offer them real value for money.

I believe that more people will buy more products and take more advice but maybe not in the way we have known it in the past.

However, I see it as essential that the industry speaks with the Government along the lines of: “Yes, we can deli ver these savings but you will ha
ve to create the rules in a way that allow us to operate economically.”

It cannot be in the long-term interests of any Gov ern ment to put at risk the fin an cial stability of the UK long-term savings industry, yet the requirement that individuals be allowed to send in a £20 cheque with a covering letter whenever it suits them is simply not viable.

In the 21st Century, there are ways of accommodating small, irregular contributions that will not fall foul of social exclusion.

For example, let people make payments via ATM machines. There is a vast network of these around the country that are able to accept money as well as dispense it.

They can also issue statements so why not allow this to become the acceptable met hod of letting scheme mem bers with below a minimum amount invested having acc ess to details about their sav ings when they want them?

To do so might result in the Government having to legislate on ATM charges but if it can impose 1 per cent as a maximum management charge for stakeholder, why can it not also set down a maximum charge between institutions using ATMs?

If the Government is so keen for small businesses to use new technology, why not imp ose a requirement that all employers must provide workplace access to com puters capable of delivering information on a member&#39s investments? Would this be so onerous for employers? What small business today does not have at least one compu ter?

It is in the interests of everyone&#39s future prosperity that the UK savings industry should be presenting a united front to the Government on how we can rise to its challen ges.

Why then are we seeing those who should be providing this lead indulging in yet another round of mud-slinging over the benefits of life products and managed funds?

If Autif&#39s recent comments are correct, there is an easy way to demonstrate the true cost of life and investment products – force both to accept an identical disclosure regime.

Autif members currently benefit from far softer disclosure than that imposed on life offices. This allows them to hide away all sorts of little charges like the infamous “balance of the spread”.

I have never yet managed to get a fund manager to exp lain this to me in a way that did not add up to someone somewhere helping themsel ves to a bit more of the customer&#39s money without having to justify it.

Given how hard fund managers fought for their soft option in the first place, I cannot see them queuing up to accept equal treatment.

I have never been able to understand why the life industry and fund managers still squabble like children over the merits of their products. After all, the majority of these companies are now part of bigger groups that usually have at least some activity in each other&#39s camps.

Given the fact that Autif was so determined to build a different shape solution for its EMX electronic trading initiative, there was never really any chance that the life office community would then decide to adopt that system as a single solution for clearing stakeholder payments.

Some people would say – and I would certainly be one of them – that EMX should concentrate on increasing the so far pitiful take-up of its current system before seeking to branch out into other areas. Better still, life offices and fund managers should get around a table and try to work out consistent ways of delivering e-commerce to IFAs and consumers.

The most important issue here is that different types of financial services providers should surely be putting aside their differences and working tog ether to create a better environment for themselves, their customers and their shareholders.

This will almost certainly need multiple com peting solutions to the question of stakeholder contribution messages in order to benefit from heal thy competition and deliver true cost savings, not a single hub as is now being advocated in some quarters.

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