Speed is of the essence

Mercer is leading the way in the adoption of an automated transactions system for the pensions industry, as Foresight reports.

For many years, the pensions industry has conducted defined contribution (DC) investment transactions manually, with instructions and confirmations sent by fax. However, a new faster and secure method has been developed – Straight Through Processing (STP).
 
While manual transactions are a tried and tested system, market leaders in the industry have long believed that there must be a way to improve this area of service by exchanging investment information electronically.

To this end, in 2006, an industry group was established to work together, share knowledge and create a common messaging standard – known as “ViaNova”. Working with two other third party administrators and two fund managers, Mercer was a founding member of the Investment Management STP Development Group (IMSDG).

“Our innovative Straight Through Processing (STP) software is basically the automation of transactions that historically have been processed manually,” says Claire Ross, Mercer principal.

“We’ve removed all manual intervention from DC transactions and linked the third party administration systems with the fund manager systems, providing significant benefits for our clients.” Information such as buy and sell instructions, deal confirmations, reconciliation statements and unit pricing can be passed between the respective parties without manual intervention.

Among the benefits offered by STP are:

• Increased speed - STP has significantly speeded up the transaction process. In some cases, it has reduced the trading cycle for single transactions by up to 48 hours, which can make a big difference in any transaction.
• Reduced risk - The enhanced accuracy offered by STP minimises the risk of errors and delays by removing human intervention, postal systems and fax machines. Strong controls and procedures have been built into the system and thorough testing has been successfully completed.
• Unlimited volume - An unlimited number of transactions can be sent or received at any time with no adverse effect on performance.
• Fully compliant - STP fully complies with regulatory recommendations, including the application of the Financial Services Authority’s principles of Treating Customers Fairly and the use of a secure communication channel for the transfer of data.

“STP also provides greater visibility for our clients,” says Claire. “The information available to trustees and their members is up to the minute and easy to access so they can see how their assets are performing.

“For those fund managers using STP, it also compares more favourably with investment-only platforms in terms of the speed of trading times it offers,” adds Claire. “The challenge obviously is to get everyone using STP.”

And it’s a challenge that Mercer is tackling head on with the other members of the IMSDG. Since its launch in April 2007, STP has been building momentum with more third party administrators and fund managers coming on board. Earlier this year, it received a further boost when the Raising Standards of Pensions Administration Group backed the adoption of ViaNova in its best practice guide for DC.

“While we had a slightly slow start as the industry waited to see how STP worked, the momentum is really building now,” explains Claire. Claire adds that during 2010, Mercer expects at least ten fund managers and another six pension scheme administrators to have adopted the standards.

As well as being part of the leading group, Mercer is also playing a key role in driving the initiative forward, hosting meetings of the ViaNova group to check on progress and encourage further take up.

“The more fund managers that sign up to the system, the greater the benefits for everyone, so my message to our trustees would be to encourage their fund managers to adopt STP,” concludes Claire.

To find out more about Straight Through Processing, or to receive a fact sheet on the subject, please contact your Mercer consultant or e-mail  Mercer Foresight