Moventum radar picks up small distributors

Roxane McMeeken profiles the fledgling Luxembourg firm which is offering to take care of the back- and middle-office needs of smaller banks, advisers and insurance companies. “Many advisers are standing in blood”, says John Pauly, former managing director of transfer agency at Dexia, one of continental Europe’s premier back-office providers for mutual funds. “They are stuck and do not want to talk to their customers”. The larger-than-life European fund industry personality claims to be throwing distributors a lifeline that will allow them to meet the growing demands of their customers. Mr Pauly has quit Dexia’s First European Transfer Agent to become the chief executive of a new company aimed at small banks, insurance companies and independent financial advisers (IFAs). The Luxembourg-based operation, called Moventum, offers a full suite of services, including access to institutional investment funds, extensive back-office support and marketing and asset allocation tools. Moventum is backed by Linsco Private Ledger Financial Services, a US-based independent broker with E40bn of managed assets. “Distribution is the future”, asserts Mr Pauly, and the innovative Moventum model is ideally placed to take advantage of this. The fledgling firm offers a platform that can take care of a large array of the needs of an IFA, smaller bank or insurance company:

• Moventum’s platform can handle the back-office functions, including cash collection from clients, commission collection and payment and order execution.
• It offers “selection engines” to help distributors pick funds and build asset allocation models based on the risk profiles of particular clients.
• The system can also produce newsletters and marketing documents, such as product descriptions, to send out to clients. These can be white- labelled if desired. Mr Pauly says: “This isn’t the difference between keeping and losing clients, but we will make the production of these leaflets cheaper because we will have an economy of scale”.
• Another service Moventum provides is the aggregator, which aims to further assist investment advisers by allowing them to view all the different holdings and liabilities of a client at once.
• Finally, access is provided to more than 3000 funds in the manner of a fund supermarket. Fund supermarketing But Mr Pauly emphasises that Moventum goes beyond the standard supermarket model. “When I’m explaining what Moventum does, I usually start by saying it’s a fund supermarket and then spend an hour explaining why it’s not a fund supermarket.” Distributors can either use all of these services or pick and choose specific offerings. Moventum’s services can also be used alongside those of rival providers. The new company is currently concentrating on Germany, where the IFA market is well established. It has hired a 12-strong sales force for the task. Mr Pauly declines to reveal how many clients he has signed up, but says that many have been converted. The next step is to get them to transfer existing business on to Moventum’s platform, as opposed to just putting new business on it. He adds that he is confident of signing up 500–1000 German distributors within three years. “But it’s really about the assets. And you need E1–2bn to have critical mass.” Yet Moventum’s business model is far from proven. The proposition is fairly unique. It compares most closely with that of Raymond James Investment Services, another firm that is just starting out. Little known in Europe, Raymond James is a top 10 player in the US, which recently launched in Europe and offers similar services – stretching from front to back office – to UK investment advisers. Mr Pauly concedes that “the idea of an IFA using a platform is relatively new and there are questions over whether it will work”. But his faith in the strategy is evident from the fact he gave up a senior role at Dexia after nearly 25 years with the group in order to pursue it. After establishing itself in Germany, Moventum plans to roll out its service in Europe. But Mr Pauly says the firm is still “scratching its head” as to which country to tackle next. Austria would provide the advantage of being able to use the same sales team. “But Italy would be another good market. Independent advisers are big there. The statistics make it look like banks are doing the distribution there, but behind each bank is an IFA network.” Eventually, it will be both, according to Mr Pauly.

Banks blocking progress? Big banks are blocking the progress of third party fund distribution, according to John Pauly, chief executive of Momentum. He says: “People blame IFAs for all the different ways of communicating, but IFAs using Moventum are not sending faxes.” One of Moventum’s key selling points is that it offers advisers, small banks and insurance companies a single way of communicating critical information to fund managers. Mr Pauly says: “It is large banks who are sending the faxes. You would not expect it to be because they have a lot of money. “But the problem is that half the world still believes that a fund is the same as a security. In fact there is a monumental difference between the process of investing in these two. With stock, the only variable is the price of the shares. The same chain cannot handle investment in a fund, so people send a fax instead. “Some bank mainframes simply cannot handle investment in funds,” he says. “They were designed back when there were few funds and now they do not want to play around with their mainframes – it would involve thousands of lines of code.” Also, for many banks, investing in funds is a very small percentage of what they do. “They have already had to pay out for Y2K, for the introduction of the euro, the economic slump and now the war,” Mr Pauly says. “No one has any appetite for doing big things at the moment.” But he warns, “this one small imperfection for banks is a big problem for the funds industry as a whole”. Banks cannot bury their heads in the sand forever, according to Mr Pauly. “Customers want choice, that’s why people go to supermarkets instead of grocery stores. They are demanding access to funds, and banks cannot opt out of this business. Many banks offer a wide choice of third party funds, but still create strong incentives for buying in-house products.” Things will have to change, says Mr Pauly.

Dexia's midnight runner John Pauly is proudly “Luxembourg born and bred”. While he remains in his city-state home despite his defection to Moventum, he is still taking a massive step. He has been working for Dexia, formerly Bank Internationale ŕ Luxembourg, since leaving school. From 1997 he headed up the Franco-Belgian banking giant’s Luxembourg-based transfer agency subsidiary First European Transfer Agent. His unexpected departure suggests that FETA, strongly independent under its flamboyantly vocal MD, will now be brought closer into the Dexia fold. Mr Pauly explains that his departure was a matter of principle: “If I believe what I’ve been saying at conferences for the past few years, then I have to be on the distribution side. Transfer Agency was reasonably close, but Moventum is as close as I can be without actually being a distributor.” He is content to remain in the Grand Duchy and confessed he has in fact never lived anywhere else. There is only one problem, he says: “I love sailing, which is a very challenging pastime if you live in Luxembourg.”