Adding value

For years it has been possible to find the balance of a standard bank or building society account pretty much instantly. Either through an ATM, over the counter or over the phone, full account information can be retrieved in seconds. But the same service has not previously been available for most financial services products; it could take weeks for an adviser to obtain details of his clients’ pension plans, investment bonds or life products.Happily the situation is now changing, with a host of software companies creating systems that allow providers to offer real-time valuations across their product range. Here we will examine developments in the market, studying the links between various firms and the types of business that these links enable them to transact.Recent developments in the software underpinning electronic business have seen IFAs’ online capabilities increase. Origo, the standard security system for online financial business, has seen its updated system – version 2.0 – make steady inroads into the market. And at the start of this year The Exchange, the most widely used IFA trading platform, unveiled its latest system, Exweb Gold. The portal carries all the features of the traditional platform, but can also offer data from several providers in one place.Incredible bulkSo what can each firm provide? shows the capability of various life offices to carry out bulk downloads on a variety of basic product types: bonds, pensions, endowments, collective investments and protection products. Bulk downloads are like real-time valuations, but can be carried out across a number of policies simultaneously, so they are applicable to group schemes or can be used by an IFA to find details of all his clients’ holdings through one supermarket or from one pension provider or insurer.The Table shows a distinct bias towards bonds and pensions, with six of the 10 featured providers having solutions in place to deal with bonds and all but one (Scottish Mutual) having scope to provide bulk downloads on pensions.The entry for Scottish life in the pensions column, which says simply “tactical solution” means that the provider is capable of providing bulk downloads, but that it does so through a system created by itself, not using the Origo standard.Adding the technology earlyThis pattern is typical of industry focus. The Exchange’s head of PR Charlie Musson admits that, as the areas where value can most obviously be added, pensions and bonds are the natural choices to focus upon during the early stages of the new technology.Protection and endowments are less likely to offer bulk downloads, with just three providers out of 10 having systems in place for each. Endowments are currently largely unpopular following a string of well-publicised problems, so it is understandable why they would not represent a priority for providers looking to promote more viable and popular vehicles. But there is no reason why those with endowments should be barred from enjoying the luxury and as the technology becomes more widespread, valuations on endowments should grow to be more commonplace.With protection, the issue is not one of the product’s popularity. Rather, there are doubts as to the value that valuations can bring to the market. On a typical protection product, an instant valuation is not seen as an important tool. Whole of life products with an investment element are the obvious exception, but these do not constitute a sufficient proportion of the market to propel it ahead of pensions or bonds in the providers’ priorities.Collective investments similarly have not had a significant market share for long enough for providers to have developed sufficient interest in promoting them. As a result, only two of the 10 providers can offer bulk downloads for collective investments. One of these is Skandia – with a long standing multi-manager offering as one of its flagship products – which features bulk downloads. Skandia and Scottish Widows are both capable of providing bulk information across the range of products featured in the Table.Link in the chain shows the links that are currently in place between various life offices or supermarkets and software providers to process bulk downloads. There are still a lot of gaps within the Table, but the situation is improving all the time. And those pale squares representing the life offices that are operating with the previous Origo standard will eventually turn darker as the firms update their systems to version 2.0.As it stands, of the featured companies, only Standard Life has taken the plunge with Origo’s updated system, using it to underpin its links with both 1st Software and Positive Solutions. The firm’s link with Intelliflo relies on a bespoke system, again classified as a ‘tactical’ solution.The gaps in the Table could also be explained by some life offices having closed books. Although there might still be demand for valuations on these, the insurer will not see making this information available as a priority.Perhaps not surprisingly, the necessarily technology-oriented fund supermarkets generally have more links in place than the traditional insurance firms. However, there is no uniformity between the supermarkets, each conducting business using its own specific imported software. EMXCo (Electronic Message Exchange) is not a supermarket, but is included as it provides an electronic messaging service, which can be linked to IFA client management systems to obtain valuations. Virtual valuations shows each insurer’s capability of providing real-time valuations on an individual basis. With the exception of protection, the table covers the same product types as Table 1, and the patterns revealed are also largely the same.As with Table 1, Scottish Mutual is the only provider not to be able to provide online valuations on pension products. In the bonds sector, Scottish Equitable is the only provider not to offer real-time valuations, although it can provide bulk downloads. Conversely, Friends Provident, Prudential, Scottish Life and Standard Life, which are all unable to offer bulk downloads, can provide individual real-time valuations.Table 3 also mirrors Table 1 in terms of the dearth of providers offering valuations on endowment or collective investment products. This might be explained by the fact that Origo has so far only developed its valuation standards for pensions and bonds. While it is planning to update its endowment and protection systems, providers may await that development before jumping in. shows the third-party links put in place by software providers for real-time valuations. The table is clearly more populated than Table 2, but there is room for improvement from both sides. Friends Provident emerges as the most technologically versatile provider, linking to seven of the nine software providers listed. EMX’s entry in the table is tinted because it has its own system in place, which does not use Origo standard, but is noted for its security. A number of industry practitioners argue that the system is more secure than is needed, particularly for valuations, although tight security is certainly not a drawback.The system is undeniably more secure than Origo, but that does not mean that Origo is not secure enough, rather that EMX’s system is perhaps over-elaborate. Only WMS has taken the time and trouble to integrate with EMX’s system and there is nothing to suggest that any other provider will be joining them.Supermarket sweep shows the links that have been established between a selection of investment houses and fund supermarkets. The table shows which fund managers offer valuations through which supermarkets, rather than simply the ability to transact business. It is anticipated that electronic valuations will become as widespread as transactions are today, as the funds industry is not currently making as much use of online valuations as it could do. The demand is there. Ian McKenna, director of the Financial Technology Research Centre, estimates that as many as 40% of calls to fund managers’ call centres are made to request valuations.But gaps remain within the Table. Quilter for example has no links listed. It is by no means the only company in that situation, but demonstrates that there are still fund management houses resisting the technology available. Eventually this will have to change because of a combination of demand from investors and the simplicity – and reduced cost – that e-business can provide.The advances that have already been made in the technology arena have seen IFAs’ online capabilities extend to incorporate accessing valuations. As electronic processes become more comprehensive, so it should all become smoother and as McKenna says, in an ideal world, the standards would be invisible to the adviser. He cites Exweb Gold as an example of what can be achieved. While it does not yet feature many providers, it at least “shows what can be done”.jon.cudby@ft.com