Investment instruction errors cost TPAs thousands

The information logistics firm said 53pc of TPAs reported errors such as mis-direction of funds, incorrect fund selection and mis-keying of instruction data had caused them to lose money.

Altus said the errors result in losses to the customer and fines which are already costing some TPAs thousands of pounds per year.

The study also discovered much of the processing and auditing of investment instructions is still completed manually.

More than three quarters (77pc) still rely on the fax to send investment instructions to fund managers, while 16pc send investment instructions by post. Only 3pc of respondents use the electronic messaging standard ViaNova for investment instructions.

Altus product manager Ben Cocks 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 (83pc). A third of administrators also seek trustee approval in some cases, normally determined by the size of the transaction.

Cocks said these paper trails can be quite lengthy and yet without investment instruction Straight Through Processing 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 (20pc) of TPAs surveyed expected to automate the process within the next year and 60pc admitted they had no current plans to do so.

Cocks said: "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.

"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."