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Affairs of the mart

A new force has hit the retail investment market this year. The principle

of the fund supermarket has really hit home. Just five years ago, the

thought that a significant number of IFAs and customers would be able and

willing to trade investment funds through an internet platform would have

been the stuff of science fiction.

The basis of any supermarket is that it is a single place through which

customers can buy a wide range of premium and economy brands. The

supermarket should generate sufficient volume of sales that prices and

costs are reduced for the customers and manufacturers who choose to use it.

The customer gets a one-stop shop and the manufacturer gets new

distribution opportunities that will help deliver more efficient products

and services to customers.

In the UK retail financial services market, there are in excess of 25,000

products, including over 1,600 unit trusts from 150 fund providers.

Around 85 per cent of financial products are purchased in the UK using

some form of advice. In the US investment fund market at its peak, direct

purchasing accounted for around 30 per cent of the market but is now

falling back as more customers realise the need for advice.

All this adds up to the fact that our market is confusing. Our customers

do not want to do it all themselves and advice will remain the dominant

distribution method for medium- to long-term financial services products.

The fund supermarket concept may provide a tool for a small percentage of

customers to buy direct where they either had not bought at all or may have

used an adviser but, by and large, it will grow the overall market and make

the adviser&#39s job easier.

There are some basic conditions that need to be fulfilled before

supermarkets can truly take off. First, advisers have to have confidence in

the platform and the firm they are dealing with, irrespective of whether it

is a fund manager, a consortium or a technology company.

The key to gaining confidence is that a firm must demonstrate that it will

not use direct business to cross-sell to introduced clients. All types of

company understand that to disenfranchise your main distributors by gaining

customers through them and then trying to take those customers away is a

recipe for an unhappy business relationship. The evidence from the US is

that supermarkets understand this and a significant percentage of their

business comes through advisers.

Second, the platform needs to reach critical mass to be attractive to

advisers and customers. There is some thought that an adviser-only platform

will have real advantages over an adviser and consumer platform. There may

be some truth to this on the basis that an adviser-only platform will be

more focused and stay closer to its customers. An alternative view would be

that if a platform understands direct clients and recognises the primacy of

the relationship between adviser and client, there are benefits in terms of

better functionality, brand awareness and usability.

Advisers and customers need each other and a platform that recognises this

can bring real benefits to both parties

The third issue is that choice is key to success. Advisers do not want one

platform to cause them more problems by limiting fund or fund manager

choice. The basic concept of a supermarket, whatever the product being

sold, whether it is baked beans or chocolate biscuits, is that customers

expect choice.

If providers collude to make the adviser&#39s job difficult, advisers will

not thank them for it. The challenge must be for fund supermarkets to

compete for distribution space in their own right. If one group seeks to

restrict supply of its funds to create a short-term marketing advantage, it

will not be supporting advisers or customers.

Businesses must take their own strategic decisions but advisers and

customers will want to know that providers are competing on what matters to

them – breadth and quality of product range and the service provided to

support that product range. Anything that creates artificial barriers to

this model is not in the long-term interests of advisers or customers.

Advisers should not have time for models that confuse fund management

excellence with distribution management.

All supermarkets should allow all funds to participate. Anything less is

artificial as far as the adviser is concerned.

There is no hidden factor that is going to stop customers wanting advice

since all the evidence is to the contrary. The challenge is for the

supermarkets and providers to ensure that they gain advisers&#39 trust,

deliver comprehensive products and make the most of the positive

relationship between consumer and adviser.


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