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Supermarket forces

There can be no questioning the fact that fund supermarkets have had a dramatic impact on the personal investment market in the past couple of years.

Virtually unheard of in the UK three years ago, recent research carried out by Cofunds suggests that 94 per cent of IFAs use these organisations for some of their investment fund business.

In some cases, the market share is substantial. One major national IFA recently told me it was placing 80 per cent of their fund business across a wide range of fund managers via a single supermarket platform.

This is hardly surprising. The diversity of fund choices, freedom to switch manager without having to transfer provider and competitive charging present a compelling argument for placing business in this way.

One of the joys of fund supermarkets is that they can genuinely be a win/ win/win situation for consumers, advisers and pro-viders. The client benefits from greater flexibility and investment choice. The adviser can maintain client investments in a single platform without having to cope with paperwork from multiple providers and the provider benefits from outsourcing much of the day-to-day admin and paperwork, allowing them to cut infrastructure costs and focus on their fund management activity.

Now we are living in the 1 per cent world, IFA revenue streams are under increasing pressure. One of the main challenges to any IFA business must be how to service more clients at lower cost.

Running an annual Isa season marketing campaign is an ideal way of doing this. This week, I am aiming to help readers start the planning for their 2002/03 campaigns.

I will also be looking at some of the tools and services which the leading supermarkets have to offer to help IFAs identify the right fund supermarket(s) to partner with.

I believe a cost-effective marketing campaign will combine the best of traditional and online methods. Existing clients may justify the full face-to-face experience but with the limited commission payable on even maximum Isa contributions, it must be worth considering mixing this with mechanisms to allow at least some customers to buy in a self-service manner.

An increasing number of supermarkets are offering elements of their services that can be populated to IFAs&#39 own websites. This makes it possible to create marketing material that might summarise a range of fund selections that an adviser could recommend and then encourage the consumer to go direct to the adviser&#39s website to establish the business online.

If you plan to do this, there are two main things to remember. First, if customers are expected to self-service, you are going to have to give them some incentive to do so.

Creating mailing material extolling the virtues of a particular investment app-roach and inviting clients to self-serve but based upon full commission is unlikely to be successful.

If the client goes online and executes the purchase themselves, it is significantly cutting your costs as an adviser compared with a traditional face-to-face sale.

Not surprisingly, the customer will expect to share in some of the cost saving. Offering clients the opportunity to buy on a self-service basis from an adviser they know may also persuade some to use you rather than going to a discount broker.

The second point is that websites do not promote themselves. Even if you are offering very attractive discount terms, it is important to have a clear marketing and promotion strategy.

Anyone expecting to just put up a website and expect the business to fly in is going to be disappointed. A number of supermarkets have material to help advisers in marketing their web services. For example, FundsNetwork has downloadable guides on how to market FundsNetwork and how to market a FundsNetwork Hotlink (its service to embed the FundsNetwork pages within and advisers site which can be obtained from the adviser area in its service).

In addition to identifying clients that can be targeted, it can be worthwhile examining how you can work with other professionals such as accountants or solicitors to offer discounted rate selfservice Isa to their clients.

You may need to agree a revenue share on commission generated but again, if transactions can be automated, you are effectively getting commission and a new customer who you may be able to turn into a client for very little work yourself over and above setting up the deal in the first place. It is worth thinking about creating a co-branded website to meet the needs of the clients of such partners.

Another possible partnering opportunity is with employers where you might have established a group pension scheme, especially if it has been a stakeholder scheme. Given the limited remuneration from this contract, the least the employer can do is give you the chance to attract other business from their employees.

If you are going to look at building multiple bespoke websites, so-called B2B2C sites, it is almost certainly worth looking at Skandia&#39s My MultiFundShop service. This tool allows the adviser to create their own branded versions of the Skandia supermarket and to do so for as many different brands as they want.

The process is really easy to use. I created a very simple site in a few minutes. High-quality results should be achievable in an hour or so. Various other supermarkets will allow you to incorporate their services in the adviser&#39s site, the Skandia service, which has no minimum business level requirement, is probably the most flexible of its type at the moment.

To be cost-effective, it is important to make it clear that any discounts are going to apply to business where the client has self-serviced.

Be careful not to allow customers to try to use your full service advice approach and still expect the discount. A further way of keeping costs down is to distribute your mailing material by email. Producing 1,000 email items by mail merge and generating the appropriate brochures to go with them will, by the time you have allowed for the cost of letterheads, envelopes and stamps, probably be cheaper than dispatching the 100 hard-copy items by the post. My advice to IFAs would be try to get your clients&#39 e-mail addresses whenever you can as it is an ideal way to establish regular low-cost communication. Be sure, however, that you always have something valid to say, you do not what your regular emails to be perceived by the clients as spam.

Most IFAs will have 100 to 200 clients they look after very actively. Invariably, there will also be a few hundred people who may have been helped with one or two individual transactions in the past but have never really converted to regular clients. These make an ideal target for including in a marketing campaign. After all, if you can attract them with the right Isa product, this must then be an ideal time to offer them a wider review.

Post-Sandler asset allocation is increasingly bec-oming one of the issues in investment management so it is hardly surprising that supermarkets are increasingly making tools to support this important area.

Skandia was first into this space a few years ago with its excellent USelect desktop software package. Selestia also has a powerful asset allocation engine at the heart of its service, Fidelity has recently joined this fold with its new I-Tools package, a demo for which can also be found in the adviser area on its website.

Unfortunately, none of these services are yet available in a format that can support B2B2C activity so for the time being, probably the best approach an IFA can take is to use the respective tools to create model portfolios based on different attitudes to risk and show these adjacent to the fund supermarket content embedded with the website.

The lack of B2B2C versions does in fact create the opportunity to further differentiate your offline offering as profiling a client&#39s existing portfolio using tools such as Select might be something that advisers would want to offer as a separate chargeable service.

In creating your mailing, you will need the support of the supermarket in creating co-branded material to include in your mailers. The extent of the customisation will depend significantly on your relationship with the supermarket you choose.

Both Cofunds and FundsNetwork will provide an extensive range of materials, varying from artwork for brochures and applications should the adviser want to print their own Isa publication to overprinted brochures with pre-selected fund options and prepopulated with agency details.

Fidelity also offers a Brochure Builder software application that enables them to create relatively small bespoke prints, sometimes as few as 500 copies. This is again dependent on being able to make a good business case for their production. This should be taken as an opportunity to benefit from the company&#39s extensive experience in operating successful marketing campaigns rather than as a barrier.

It is only fair to recognise that there are some losers in the supermarket world, particularly with the advent of reregistration. The supermarket does have to be paid. This inevitably comes out of part of the fund manager&#39s own fee. It is difficult to imagine that a manager with big existing investments in poorly-performing funds will be too keen. They have to give away part of their management fee and it is easier for clients to exit their funds.

Interestingly, a manager who refuses to allow reregistration of their funds may be giving the strongest possible indication that they have little confidence in their ability to improve on their performance, so it may be worth considering exiting anyway, depending on the financial implications.

April 6 does not, of course, have to mean the end of the exercise. Provided you are happy that the market still represents good value at that time, what better way to drive in some more business than emailing all those who took advantage of your 2002/03 offer and inviting them to invest early for the new tax year?

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