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All wrapped up

Clients’ portfolios can be valued, reviewed and managed online within a fund supermarket.

I have been told by my IFA that the investments he has recommended are to be bought through a fund supermarket. Is it in my best interests that my money is invested through this route?

Many IFAs use fund supermarkets or platforms to buy investment funds. These enable IFAs to provide up-to-date advice on a huge range of investment products and build the perfect investment portfolio for individual clients.

To put this into context, it is worth knowing that, according to the Investment Management Association, there are more than 100 investment houses offering in excess of 2,000 investment funds based in the UK. Only an IFA will be in a position to provide advice on all these funds while acting in a client’s best interests.

IFAs need to be able to consolidate all a client’s investments in one place so they can ensure the asset allocation is appropriate according to the risk outlook and time horizons that need to be applied to the client’s investment portfolio.

There are currently only a handful of quality fund supermarkets in existence as the development costs of competitive platforms are estimated to be in hundreds of millions of pounds. The existing quality platforms allow advisers to buy in excess of 1,000 funds from over half of the investment houses in the market.

It can be hugely beneficial for clients to have their funds valued, reviewed and fully managed online. Such benefits also apply to older products such as Peps and Isas that may have been bought from a variety of fund managers, particularly if they need to be brought together as part of an overall investment portfolio. This can also apply to increasingly popular self-invested personal pensions.

Fund supermarkets enable IFAs to examine all their firm’s holdings and transactions on a daily, weekly or quarterly basis. Information can be viewed in a variety of ways, for example, by client, fund or registered individual, to give the exact picture needed to provide best advice. The IFA can see full details of fund flows week by week, spot new business trends immediately and alert clients if there are issues with a fund, such as the fund managerleaving. In simple terms, fund supermarkets help IFAs be more efficient.

Information from online supermarkets is up to date, quickly available and easily accessible. It is important that IFAs are aware of the launch of new funds and the tax status of the funds.

The adviser needs to know at the touch of a button if the fund is held as an Isa or directly, in which case there may be an issue with capital gains tax upon selling. The tax wrappers around a fund can be identified, helping with tax planning.

Currently, the biggest independent fund supermarket for advisers has assets under administration in excess of 10.1bn. By 2010, it is estimated that assets on platforms will reach close to 180bn.

A major driver for fund supermarket business is the reduced costs offered, as funds bought through a platform may have an initial charge as low as 1.25 per cent while the same fund bought outside a platform may carry the full initial charge of 5.25 per cent.

For stockbrokers and discretionary asset managers, supermarket platforms allow the dealing and holding of investment funds to be integrated with the processing of equities and other assets. This is important as a major European directive known as the Market in Financial Instruments Directive and the FSA’s overriding principle of treating customers fairly will force advisers to give clients the best possible service and advice.

TCF can be adhered to only if a fund supermarket works seamlessly with an adviser’s back-office systems. Data concerning fund dealing, settlement and valuation needs to be moved to the adviser’s databank and all such information needs to be timely, accurate and accessible.

Open architecture is being launched in the UK to fully consolidate a client’s total financial situation. Although no single definition of a UK wrap exists, wraps certainly need to align with the fund supermarkets.

I can see little objection to one of the bigger fund supermarkets buying and holding your portfolio.

Kim North ( is founder of Technology & Technical.


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