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The great barrier brief

How can it be that, after a decade of trying to encourage electronic trading within the life and pension industry, so little e-commerce takes place?

Volumes are much higher than 10 years ago but, as a percentage of the whole market, penetration remains low. How many of the comparative quotes given online are delivered as an end-product to the client?

Millions of pounds have been invested, mainly by product providers, in establishing an e-commerce capability but what return have they seen on that investment to date? The drive towards lower-margin products demands that these investments must now start to deliver.

Looking back, it is easy to see why product providers were keen to establish an e-commerce capability. In two words – cost reduction.

However, while proprietary solutions were acceptable to support tied distribution channels, this was never going to be sufficient for the wider independent financial adviser market, where the intermediary wanted a common interface and process to access all providers.

Recognition of this need led to the major product providers being prepared to pool resources and work together to achieve a common platform. Origo was born to act as industry sponsor and The Exchange as a tied software provider.

Although it is difficult to see what other options might have existed, this was always going to be something of an unholy alliance. While a common purpose existed, the priorities and capabilities of organisations were clearly different.

Nevertheless, there were some successes. For example, the introduction of CTP 3.0 at the advent of hard disclosure, while not without launch issues, was undoubtedly a major step forward.

However, many product providers found themselves frustrated by lack of progress in the areas which they saw as key to their success, frustrated by the consequent lack of return on their investment, concerned at the tie to a single software provider both in terms of delivery and transactional cost, and worried about their ability to differentiate their products within a common platform.

The outcome was the sale of The Exchange in order to encourage other software suppliers to enter the market and the designation of Origo as the bearer of industry standards. The feeling was that more rapid progress could be made through fast-track groups with an interest in a particular area, working together to achieve a shared goal. The standards created could then be handed over to Origo for use within the industry as a whole. Enter the new portals such as Assureweb and initiatives like e-Bonds, for which Towry Law has received so much credit over the past 12 months.

So much for the brief history lesson but where does that leave us now and what can we learn from the past? Within most product providers, electronic trading capability is now reasonably strong, at least at the interface level. Standards exist for electronic messages across the range of activities, be it new business, servicing or commission.

Question marks exist over how well these messages are integrated with provider back-office systems but this is really an issue for individual providers and I guess most take the view that the investment case is not there until there is greater use of the message standards by IFAs. At the moment, that just is not happening.

In my experience, IFAs on the whole recognise the potential benefits that can be derived from e-commerce. At a conceptual level, they understand the potential for reduced cost and increased speed of processing and long-term data quality. In general, they fully appreciate and support a desire to eliminate paper wherever possible from the supply chain. Their concerns focus on their ability to integrate e-commerce into their existing business model and its current importance relative to their other pressures.

In recent years, regulatory costs have spiralled in terms both of day-to-day compliance and industry reviews. These are not optional items for IFAs and have represented a significant drain on already scarce resources. In addition, IFA businesses are still relatively small compared with product providers. Investment capital is limited and, inevitably, what is available is mainly focused at client-facing activity that can add immediate top-line returns for the business.

At best, investment in strategic objectives must break even in the year of expenditure so there is no detriment to the firm&#39s cashflow. Even though portals now exist to help facilitate e-trading, in most cases the existing business and IT infrastructure of IFAs is not sufficiently robust to enable them to move at any significant pace towards a new business model without significant detriment to their current trading capability.

Action is required to facilitate change. This can either be in the form of enhancing the benefits of change (the move to low-margin products may be a clear catalyst here) or by reducing the impact of the barriers. Change management principles would normally advocate the latter.

It is akin to trying to drive a car with the handbrake on. Yes, you might be able to move the car by applying more pressure to the accelerator but progress will be slow. However, by releasing the brake, movement will be quickly achieved. Equally, by addressing the barriers to electronic trading for IFAs, progress can be made. Like the car, once it starts to move, progress will be rapid – as long as no one applies the brakes again, of course.

That is the challenge for the industry as a whole. To see full value from their past investments, product providers must listen to the needs of intermediaries, understand their barriers to change and devise mutual strategies to minimise their impact. Until they can do this with a real commitment that goes beyond their own short-term needs, progress will remain slow.


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