There seems to be some confusion in the marketplace about the role of electronic fund management services and how they will affect the intermediary's business.
Whichever financial services supermarket model is chosen, it has to harness the opportunities offered by the internet rather than undermine the intermediary's existing business.
What are the choices for the intermediary and which supermarket model is designed in their interests and with the aim of maximising their strengths?
There seem to be three types of financial services supermarkets emerging:
Those focused on the direct market offering discounted prices, such as Egg, which could prove a challenge to the intermediary.
Those built purely to support intermediaries as a business partner, such as Cofunds.
A third hybrid model which has both a direct and intermediary focus, where the direct element is offered to the investing public at a discounted price.
For any of the direct offerings to succeed, one has to ask who their customer acquisition strategy will be targeting?
The supermarkets des-igned specifically for the intermediary are dedicated to their business needs. These supermarkets aim to enhance the intermediary's business rather than fundamentally change or undermine it. A model working truly in the interest of the intermediary respects its relationships with its clients.
What are the tangible benefits of the financial services supermarkets? The following apply to all current models:
Consolidated information and administration which will not only deliver an enhanced service for clients but also ease the day-to-day management of the business.
A comprehensive range of fund managers and funds, all in one place, enhancing the portfolio planning process and offering real choice for the firm and its clients.
Value for money and real cost benefits.
We believe that there are some fundamental benefits missing from current models on the market – they do not go far enough. Financial services supermarkets need to incorporate more benefits in order for intermediaries to harness the power of electronic fund management without disabling their existing business.
First and most important, is the fund supermarket independent? Consider the power held by the supermarket provider. If it is a single company, it will empower one particular product provider. The truly independent model empowers all participating parties – intermediaries and fund managers alike – and does not have a competing offering.
Second, is it designed specifically for intermediaries? They need to know the fund supermarket they choose will not deal directly with customers, so there is never a conflict of interest. We strongly believe intermediaries should be able to stake their claim to the e-market without sacrificing their traditional core strength – their client relationship.
The hybrid supermarket model, with its discounted direct element, must surely stress-test this relationship. In contrast, the independent model is motivated purely to ensuring the continuing success of the intermediary market.
As intermediaries are entrusting a great deal of information to any supermarket provider, it is essential that they can be sure these relationships are protected. US experience tells us this is a very real issue that must not be ignored. The challenge for all is to gain intermediaries' trust.
Finally, is the supermarket built in the real world? Any fund supermarket must offer choice and added value but flexibility must be inherent in the model. Intermediaries should be able to dictate the structure of their commission so the offer to the client canbe tailored to suit business and client needs alike.
Similarly, intermediaries will want to continue their direct relationships with fund managers and negotiate directly with them.
Fund supermarkets offer a compelling proposition – removing the burden of administration and empowering the intermediary to optimise the service they provide to their clients.
As long as the fund supermarket is independent, does not seek to disable or change the intermediary's business and aims only to utilise the latest technology, it will allow intermediaries to compete efficiently and deliver advice, choice and value.