Legal & General's proposed launch of a fund supermarket in September should perhaps come as no surprise.
As one of the UK's biggest financial services organisations, it was surely only a matter of time before it announced plans for a new e-business or at least a strategic alliance with another major player.
Yet news that its platform is to rival the likes of Fidelity and Cofunds with a direct and IFA offering appears to have come as a shock to several players in the supermarket race.
While Fidelity had been in talks over the possibility of putting its funds on L&G's new platform, it confesses it was not aware that L&G was planning to extend the service to intermediaries in addition to targeting the direct market.
Although the L&G offering will differ slightly from existing platforms, the added competition from a major brand will certainly spice up the market.
Rather than trying to offer as many funds as possible, L&G is instead going for a “best of breed” strategy which will see it offer only a handful of funds in each sector.
While many IFAs want as much choice as possible, L&G believes increased time pressures and reduced margins mean that others want a simpler solution. The funds available will be selected by L&G with the help of IFA feedback.
The life office says this will leave advisers to concentrate on sector and asset allocation rather than choosing between hundreds of funds.
Fidelity welcomes the new competition but warns that L&G is wrong in its assertion that many advisers want a simpler fund supermarket. It claims research has shown overwhelmingly that IFAs value having a wide choice.
Indeed, many IFAs have criticised the Cofunds and Fidelity platforms for limiting their line-ups by not holding each other's funds.
Fidelity marketing director David Cowdell says: “In our experience, IFAs want as much choice as possible. They want the opportunity to pick tomorrow's star performing funds. IFAs are in the business of sifting through product information to select the appropriate investment for the client. That is how they add value.”
Cofunds is uncertain of how much demand there will be for the “best of breed” model. Head of sales Rodney Aldridge says: “For IFAs who say they do not want to get into fund selection, there are the multi-manager offerings such as Rothschilds and Henderson. The L&G offering seems to be some sort of a halfway house. We feel there is more demand for an open platform.”
L&G says it hopes to have between 50 and 75 funds on board at launch and, although it is unlikely to drop poorly performing funds from the platform, says it may consider adding to the initial offering.
However, some experts are concerned that committing to the same base of funds will not work over the longer term. Henderson director John Husselbee, who runs his company's multi-manager operations, says: “There is no such thing as consistency of performance. It is very difficult to pick six funds from a sector which will perform year in year out. We put in somewhere between 3,000 and 4,000 hours a year of due diligence into monitoring funds. These things have to be consistently monitored.”
Best Invest deputy managing director Jason Hollands has been a strong supporter of IFA fund supermarkets but believes the L&G proposition looks as though IFAs have been brought in as an afterthought rather than as central to the platform's design.
He also dismisses L&G's argument that some IFAs feel there is information overload, pointing out it is their job to guide consumers through it.
He says: “We think it is wrong to bury your head in the sand precisely because there is an information overload. Even if you are too busy to do your own research, you could quite easily go and buy someone else's, such as Standard & Poor's or Morningstar. I do not think that is ideal but it is better than using a supermarket with a narrow choice of funds.
“I think it is probably a bit of an afterthought to include IFAs to keep them sweet.”
Arguably, it is unfair to criticise L&G's proposition in this way until it is fully launched but there is a strong feeling both from IFAs and fund managers that the platform does not fit the IFA model.
While IFAs may have increasing pressures on their time, most dispute that any will want a service which does half their job for them.
If they want to continue picking portfolios for their clients, they will want as much choice as possible. But even if they do not, they are more likely to put their clients' portfolios in the hands of professional discretionary portfolio managers.
While the L&G proposition may well be attractive to the direct investor, it would seem L&G will have to work hard to sell the idea to IFAs.