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Take a Tep from me

The traded endowment market has come of age. Last month&#39s policy statement from the FSA recognised the role that the market plays for policyholders who can no longer keep their policy going. And with their extended use of online endowment trading services IFAs are ideally placed to handle the increased enquiries expected as a result.

Tep market-makers have been around since the late 80s but online endowment trading for IFA firms has only been established for two years. IFA use of the market has been restricted, with many choosing to steer clear for a number of very good reasons.

However, the increased usage of online services has brought many more IFAs into endowment trading. A more recent trend is the number of IFAs adding a Tep area to their own website, ensuring policyholders are aware of the option to sell rather than surrender.

This has brought its own complexities to the market, with policyholders obtaining online quotes before making a decision. In these cases it is generally the IFA who most skilfully builds the relationship with the client who will get the business. The evidence shows most policyholders are not yet comfortable completing this sort of transaction online but see the internet as best for the initial enquiry.

For IFAs infrequently involved in the market, the pro-cess of selling a policy often seemed lengthy and complicated – contacting up to eight market-makers to provide the policy details.

The information required to value a policy is detailed and often the initial enquiry would be followed by a return call to each market-maker for further information.

The market-makers&#39 offers to purchase the policy would arrive at different times and in different formats – via fax, post or phone. Once these had been collated and compared and any outstanding replies chased in, the “bidding” would begin.

Most market-makers did not make their best offer first and would increase their offer by phone if needed. Some IFAs spent considerable time in this bidding process in order to increase the offer by a just few hundred pounds.

The other big issue has traditionally been compliance. How do you document that the client has chosen to surrender their policy – usually against your advice? How do you show you have got best price for the policy? How do you show you are not churning?

It is easy to see why IFAs have chosen to steer clear of the Tep market in the past. In order to satisfy best advice rules, you need to be able to demonstrate you have approached all the major buyers. The market changes constantly. A market-maker&#39s competitiveness at any given time will depend on buying requirements and policy demand.

Online services have transformed the market, making it easier and more accessible to IFAs by using technology to solve the difficulties highlighted above. The launch of our IFA-dedicated online endowment services just over two years ago has succeeded because of its ability to simplify the process and give IFAs the compliance trail they need.

As well as accessing the entire market in one go, online services often provide a league table of offers and a client illustration that can be printed for compliance purposes. In addition, market-makers are making offers without knowing what their competitors have bid and therefore have to make their best offer first time.

For policies that are on the fringe of the market – where demand is only occasional – online trading provides a way to double-check the current position. For those who are planning to sell at a later date – on completion of the sale of a property, say – details can be stored online for future resubmission. These features save IFAs a considerable amount of time and energy.

IFA uptake of online endowment trading was cautious. When we were launching our service, we considered creating a parallel fax-based service for IFAs who did not yet have internet access. But we found that the majority of IFAs had been using dial-up services for years and internet take-up in the IFA community was well ahead of many other sectors.

The reason for the gradual uptake of online endowment trading was not that IFAs did not have internet access but because of their experience of other web services. IFAs were used to painfully slow sites with complicated processes that needed extra software to work reliably and inaccessible help desks. Those who took the plunge and tried trading endowments online saw just how easy it was and word soon got around that his was the future for the Tep market.

As life companies no longer issue full with-profits policies, the Tep market itself has around eight to 10 years left to run. But the bulk of policies were taken out in the early 90s so volumes are set to expand before they contract.

The speed of development should be largely dictated by the technical resources of the IFA community. Online endowment services, like other web trading services, must cater to the needs of as many IFAs as possible. This means providing a service that is accessible across a wide variety of formats and copes just as well with older software versions as newer ones.

Technology is set to provide more automation and seamlessly integrate with other applications. New developments will be instrumental in bringing this about and will result in customised desktops where IFAs will have access to all the web tools they use and which will integrate with their own database system.

Endowment trading will play a small but significant part in IFAs&#39 daily lives and will sit comfortably alongside the other quote and analysis tools that will become indispensable to the modern IFA.

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