I was recently explaining the concept of fund supermarkets to a client and suggested that, in many ways, they were akin to a food supermarket, such as Sainsbury. At this point, the lady recoiled in horror, exclaiming that she was a loyal Tesco customer.
I have now learned not to use such analogies unless knowing your customer extends to knowing your customer's supermarket preferences.
Such loyalty to food supermarkets would be manna from heaven for our fund supermarkets so it is interesting to hear Fidelity's announcement that, for a limited period, FundsNetwork will offer £25 to investors and £50 to advisers for reregistrations. As an enthusiastic user of supermarkets, I welcome the offer. Fidelity's clear motive is to gain market share, knowing it has financial clout.
So far, fund supermarkets have been synonymous with Isas and, depending on which statistics one reads, it appears that over one-third and perhaps approaching half of all Isa sales are being transacted via fund supermarkets. I would welcome more accurate figures here.
However, I could see this for myself when I delivered some last-minute applications to a collection point recently and there were queues for Fidelity and Cofunds, in stark contrast to the individual providers.
With the so-called Isa season over, it is understandable that Fidelity is turning its attention to reregistration.
Plan Invest is probably no different to many advisers in that we accept the benefits of supermarkets and sell many of our Isas in this way. But we have not pushed ahead with reregistration as we perhaps should have done.
I think Fidelity's move will provide a kickstart for IFAs to tackle this issue now. I was interested to hear from Fidelity that 14 of the 51 groups on the FundsNetwork platform do not allow reregistration. This is an impediment we could do without and, if you are one of those groups, can I ask what is the problem? Surely you realise that supermarkets are here to stay?
I accept that supermarkets are balancing the interests of manufacturers (asset managers), distributors (IFAs) and consolidators (supermarket companies). The manufacturer has to give up some of its income stream in reregistration but may well receive more business by virtue of being on the platform.
More important, manufacturers are saving costs by delegating distribution and asking the supermarket to carry out the customer care function.
Now look at the advantages for the IFA. Being able to consolidate Pep, Isa and direct holdings on to one statement is an immense saving in paperwork for the client and so much easier for the IFA.
I am repeatedly asked, particularly by more elderly clients, how the paperwork burden can be reduced and supermarkets are the answer. The IFA is able to create a diversified portfolio, without the constraints of the old one-manager-per-Pep-type rule, and thereby tailor the portfolio more towards the client's objectives, having the flexibility to move investments quickly.
If IFAs can find an easier way to operate, this should free more time to spend with clients. Supermarkets should facilitate via aggregation of holdings an easier model for IFAs to present when valuing their business – an important factor when we are now witnessing much more merger and acquisition activity in the IFA market.
It is not surprising that the growth of fund supermarkets in the UK has been so rapid and it will be interesting to observe whether or not we follow the US pattern, where there are two main dominant platforms, namely, Fidelity's FundsNetwork and Charles Schwab.
I see fund supermarkets as vital to investment IFAs' success in the future and we should grasp the opportunities presented by reregistration. It will be interesting to see if Fidelity's move is emulated by other fund platforms.
Mike Owen is joint managing director of Plan Invest
