Altus Pension STP Survey
5th Nov '08
More than half (53%) of third party pension scheme administrators (TPAs) have suffered financial losses because of errors in processing investment instructions, a new survey by information logistics specialists Altus found. Errors ranged from mis-direction of funds, incorrect fund selection and mis-keying of instruction data. These errors are resulting in losses to the customer and fines which are already costing some TPAs thousands of pounds per year.
Much of the processing and auditing of investment instructions still has to be completed manually:
• Over three quarters (77%) still rely on the fax to send investment instructions to fund managers, whilst 16% send investment instructions by post
• Only 3% of respondents use the electronic messaging standard ViaNova for investment instructions.
• Nearly nine out of ten (87%) TPAs still rely on filing or scanning paper copies for auditing purposes
• Half have no electronic records whatsoever, only filing paper copies
Only a quarter of TPAs (24%) get daily fund pricing feeds which means that over three quarters of the market is working with data which may be inaccurate, particularly if prices move substantially over short periods of time. Now that many TPAs (47%) regularly handle instructions worth more than £1,000,000 and markets have become much more volatile recently they expose themselves to increasing financial risk in relation to administration errors.
It is also clear that the investment instruction approvals process is often lengthy and complex involving approval by at least two people in most cases (83 per cent). A third of administrators also seek trustee approval in some cases, normally determined by the size of the transaction.
These paper trails can be quite lengthy and yet without investment instruction Straight Through Processing (Instruction STP) it is very difficult for external auditors or senior managers to obtain an up-to-date and accurate view of all instructions underway, or assess areas of risk and spot mistakes early.
Despite the clear need to take hold of this problem and the availability of technologies to enable complete Instruction STP only one in five (20%) of TPAs surveyed expected to automate the process within the next year and 60% admitted they had no current plans to do so.
The motives of the more enlightened ones that are looking at it in the next year vary, but most (50%) want to reduce their exposure to the risk of escalating financial losses. Nearly a quarter (23%) wants to reduce their administration costs; whilst 6% are being requested to support Instruction STP by scheme trustees.
Altus predicts demand for investment instruction automation will increase dramatically because of the increase in DC schemes which generate many more transactions than declining DB schemes. The advent of lower margin Personal Accounts will also demand greater automation if administrators are to handle this business without losing money. Finally, online transacting via member portals will further stimulate fund switching.
Ben Cocks, product manager, Altus, commented on the findings:
“It is quite clear from these results that TPAs face the risk of increasing financial losses as well as a rising administrative burden if they do not embrace STP. We have a solution which handles end-to-end investment instruction processing and auditing and employs the new ViaNova market practice. Altus Instruction Gateway goes further than simple message transmission to support all steps in the investment instruction process.”
Cocks continued:
“Simply replacing the fax with an electronic message, as some are planning, will lead to very little improvement on its own - in fact it will often make things worse as the fax has become so integral to many firms’ instruction processes. Only by automating the end-to-end instruction cycle - from capture, through validation, approval, confirmation and reconciliation - will an administrator gain the most benefit from STP.”
Copyright © 2012 Altus Limited