IFA Chelsea Financial's criticism of Cofunds and FundsNetwork last week showed how frustrated IFAs have become at the fund supermarkets' apparent inability to come to a compromise on the funds appearing on their platforms.
After several months, the two rivals have admitted that they are still locked in talks over a deal which would see the funds of their parent companies become available on both platforms.
The news has dismayed IFAs because the fund managers involved – FundsNetwork parent Fidelity and Cofunds' backers – M&G, Gartmore, Jupiter and Threadneedle -are all top UK players.
Hargreaves Lansdown investment manager Ben Yearsley says: “It does not help IFAs or investors when some of the biggest fund management groups are not on each other's supermarkets. Cofunds and FundsNetwork make themselves out to be one-stop shops but, when such huge names are missing, how can they say that?” Yearsley believes the stalemate has harmed both supermarkets but has probably done more damage to Cofunds which, without Fidelity, is lacking the biggest-selling fund manager in the UK.
Cofunds also lacked the presence of another big name, New Star, for almost a year until the fund manager agreed separate deals with the platforms in April.
The question remains as to what deal Fidelity is trying to strike in exchange for allowing its funds to be made available on Cofunds.
Fidelity will not divulge the information but Chelsea managing director Darius McDermott believes the fund manager is insisting that all four of Cofunds' parent companies sign up to FundsNetwork before it will reciprocate.
He says: “Cofunds is our choice of supermarket and we want to see Fidelity funds on there. Now that the exclusivity agreement has been removed, it should be each parent company's individual business decision whether they join FundsNetwork but it seems that Fidelity is not allowing that to happen. We want it to be sorted out but I doubt whether all four have the same views on FundsNetwork. It is a stalemate.”
McDermott's theory has been given weight both by the length of time that the supermarkets have been in negotiations and by their refusal to deny it.
Cofunds chief executive Clive Boothman will only say that signing Fidelity is unlikely unless there is a “basis for exchange” while Fidelity says it hopes the supermarkets can one day compete on something other than fund coverage. Neither seems confident of the dispute being resolved soon and not all of Cofunds' backers seem keen to accept FundsNetwork's business conditions.
Jupiter joint managing director Steve Glynn says: “We remain in conversation and many of the concerns we have had historically have been dissipated. But we still must overcome FundsNetwork's terms, which are by far the most aggressive of any fund platform. Because of this,I do not see there being a short-term resolution.”
Jupiter is not believed to be alone in objecting to FundsNetwork's conditions for joining but, despite McDermott's theory, there seems a good chance that Fidelity may not necessarily insist on all four providers joining its platform. Some IFAs believe that Fidelity would accept only three – the only question being which provider FundsNetwork would be happy to do without.
Simpsons of Brighton partner Andrew Merricks says: “It is hard to pinpoint the weakest link. Gartmore's funds are not that great and there may be some issues after its role in the split-cap saga. Jupiter still has doubts over its ownership and that may be a problem as well. Either way, if Fidelity accepts three providers, there could still be some problems to overcome. There are some big corporate egos at play here.”
There is little doubt that the two supermarkets' progress, though swift, could be even more rapid if such long-running and complicated issues could be resolved quicker. But some IFAs believe that Cofunds and FundsNetwork are also being hamstrung by the arcane practices of many fund managers – ironically, the companies with most to gain through the success of the supermarkets.
Michael Philips proprietor Michael Both says: “Many fund managers allow in specie transfers to the supermarkets for their funds but do not allow it for Isas or Peps, meaning that investors have to sell and then rebuy. It not only alienates clients, who are already deterred from investing by the state of the markets, but also slows the progress of the fund supermarkets. It makes no sense. Fund managers should be overjoyed to rid themselves of the paperwork.”
With optimistic but pointedly tough language coming from Fidelity and the Cofunds' backers, Both believes there will be no resolution in the foreseeable future as the camps scrap for minor – and not so minor – concessions.
But they should hurry. IFAs' patience is wearing thin and neither supermarket is doing so well that it can afford to lose business. This is one saga that IFAs would like to end soon.