The shock departure of Exchange FS's dream team from its board last week marks another dramatic turn in the fate of what was once an IFA-only quotation service.
The four board members who took the company to a £400m float, chairman Paul Lindsey, finance director David Chislett, sales director Nick Prestwich and managing director of product marketing Nigel Phillips, have all stepped aside, having watched the company plummet to a £60m market capitalisation and a share price low of just 12p last December.
The board has faced mounting criticism after two years of about-turns in business direction.
Lindsey and Philips were the driving force behind The Exchange, securing the backing of 20 life offices in 1991 to set up a quotation service for IFAs.
With life office ownership, it had a monopoly position but it really stamped its presence on the industry in 1994 when regulatory changes to the way life offices made quotations meant a new system had to be implemented fast.
The Exchange got its common trading platform up and running to accommodate the changes.
Financial Technology Centre director Ian McKenna says: “This was really the making of The Exchange. Life offices needed to find a way of getting millions of quotes out to IFAs to meet the changes. It saved the industry's bacon.”
In 1998, Lindsey, Phillips, Prestwich and Chislett staged a £10m management buyout and, in 1999, at the height of the dotcom bonanza, the company floated on the Stock Exchange at £2 a share, making the company worth £400m and the dream team millionaires.
McKenna says: “If it had continued as industry owned, the business would have fallen apart. Until the management buyout, there were 20 insurance companies pulling in different directions.”
Its deal to provide financial information to Yahoo saw The Exchange's price soar to a high of 385p, giving it a market cap of nearly £800m.
A number of acquisitions followed, including Swedish online fund supermarket Fondex in a deal worth £22.1m in Exchange shares. But Fondex was the latest casualty and was sold off last week to Swedish financial services internet firm Teletrade for just £150,000.
Renaming itself Money-extra in February 2000 after the launch of its consumer site showed loyalties had shifted firmly towards the consumer.
But in the dotcom fallout, its share price started to slump in the second half of last year and speculation was rife about the future of the business. Moneyextra.com proved to be a financial drain on the company as revenue did not meet expectations. The expensive affair with the consumer was finally ended last year and it turned back to the business-to-business arena, with a complete about-face in renaming itself Exchange FS.
Moneyextra.com was sold last November to Bristol & West for £26m. But the investment in direct consumer business lost Exchange FS support in the industry, which felt betrayed by the consumer emphasis.
Permanent Insurance sales and marketing director Rod Macdonald says: “The Exchange has really failed over the past two or three years to respond to the changing dynamics in the industry. They have changed their strategy every few months and failed to look after their customers.”
In a major coup aimed at winning support from the IFA community, former Misys and Countrywide chairman Jim Gaskin came on board to take the business forward in the intermediary market.
But the industry has moved on and now Exchange FS is not the only IFA portal. Misys-owned M-Link and DBS-owned Assureweb are free for IFAs to use while Exchange FS still has a monthly charge.
Macdonald says: “The Exchange has had a complacent monopoly and is now having to work hard to restore customer confidence. Other portals are not charging for quotations. I do not know how The Exchange expects IFAs to continue paying for them.”
But Exchange FS is providing 60 million quotations a year and has 15,000 RIs using its service. New services are being added, most recently a Tep trading service and investment bond comparative quotation service.
McKenna says: “The Exchange is responsible for a quiet revolution in the industry. There are three or four alternative platforms but Exchange FS has far more users who are actually paying for the service. The industry would look very different if it had not come about. It is impossible to understate the contribution it has made to IFAs and providers.”
Exchange FS bought financial services software com–pany Crisp Computing for £29m last November. The firm has extensive experience in point-of-sale and back-office systems for life offices. Using this expertise, Exchange FS is planning to position itself as a provider both to intermediaries and life offices.
Corporate development director Gaskin says: “We are working to power other people's distribution. We spent a lot of time trying to build a consumer brand but that has gone now. We are now totally focused on business to business. We can provide solutions to small IFAs, large IFAs, networks and providers. We are very customer-focused and very confident about what we can provide going forward.”
McKenna says: “The challenge now is to maintain its market position and bring out more tools for IFAs to not only help them run their own business but also deliver services to their customers. Its core business has gone from strength to strength. It does need to do some work to maintain its position but its share price does not reflect the value of the business.”