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Big names missing from shelves as Selestia opens shop

When fund supermarkets first opened their checkouts last summer, pundits were quick to prophesise a revolution in IFA distribution. Many predicted a proliferation of new platforms fighting to become the leading IFA distributor.

The emphasis was expected to be on tools and customer service levels rather than differences in the selection of funds available.

A year on, however, the picture fails to even vaguely resemble that scenario. Fidelity and Cofunds have quietly dominated the market alth-ough Skandia has disturbed their duopoly by adopting its existing offerings.

While Legal & General and Norwich Union have talked about entering the supermarket arena, it would seem that both are looking at best-of-breed platforms, which have generally received a thumbs down from IFAs.

So as Old Mutual gears up for the November launch of its Selestia multi-manager platform, the market may be set for its first shake-up. Selestia has a formidable task on its hands but it would seem that it intends to take on its competitors by highlighting their inefficiencies and driving for higher standards across the board.

Yet Selestia has one major obstacle in its way. With the four founders of Cofunds having renewed their exclusivity pact, and with Fidelity, Henderson and New Star having elected to stay off the platform, Selestia is missing seven of the fund management industry&#39s biggest names. This a fact that many IFAs will find hard to overlook.

Selestia argues that its lack of big names is not an issue and has done the sums to prove it. It claims the 31 UK equity funds which are managed by the four founders of Cofunds have an average annual return over the past three years of -1.25 per cent. This compares with an average annual return of 6.65 per cent from the 37 UK equity funds which Selestia offers.

Selestia marketing director Bill Vasilieff says: “The main issue with fund selection is asset allocation and we have got the asset allocation expertise. Beyond that you need to pick up good funds and we have a good selection of funds as well. Big names does not mean big performance.

“The founders of Cofunds have tried to stop competitors coming into the market but they have not stopped Fidelity a bit by not being on its platform.”

Vasilieff claims Cofunds and Fidelity have a pointless obsession with bringing as many funds on to their platforms as possible. “There seems to be a sort of arms race to see how many funds you can get on your supermarket. But how many of those are actually taking business? Probably only a handful. There are a huge number of funds taking no business at all,” he says.

For those who are not deterred by Selestia&#39s limited fund range, the platform offers a strong proposition. Low charges and flexible commission structures make it attractive both to consumers and IFAs.

However, while Vasilieff may be right in his assertion that big names do not always mean big performance, it would seem that most IFAs are not ready to completely forfeit the option to invest with the big houses. They still live in the hope that all platforms will eventually include the entire fund universe.

Plan Invest joint managing director Michael Owen says: “The perfect IFA supermarket would include everybody. With seven big names missing, we think Selestia is not much more than a cornershop.”

Plan Invest is yet to pledge its allegiance to any of the platforms but has instead spent several months reviewing their merits. Owen says it has so far sided with Cofunds because it allows IFAs to use their individually negotiated discounts with providers on the platform.

For those who still see fund choice as the most important factor, it is Skandia that looks to be the strongest offering. With every major provider on board – including the four founders of Cofunds, Fidelity and New Star – Skandia undoubtedly has the most comprehensive proposition.

In the past, many IFAs have steered clear of the platform because of its higher charging structure. But, having reduced its fees, as well as having pledged to develop the capability to trade in everything from pensions to life insurance to investments, Skandia is now receiving a second look from IFAs.

However, even Skandia is not perfect. Its charges are still slightly higher and some have reported that its systems are still very slow. IFA Mich-ael Philips says it favours the Transact platform. Although slightly simpler than its competitors, proprietor Michael Both says it is efficient and offers trading outside the unit trust universe.

Both says: “I want to be able to choose from any fund, any corporate bond and investment trust at any time. I want it to be easy to select products and easily see the value of my portfolio. I also want to do it fairly quickly. At the moment, Transact is the closest to that.”

No platform appears to offer the perfect solution but another addition to the market can surely only be good news. But while Selestia may force up standards by challenging its competitors on service, the fund supermarket industry may not come into its prime until every provider is available through everyone else&#39s platform.

With Cofunds&#39s founders having extended their exclusivity pact for another year, that may well take some time.

Profile, p37

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