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Supermarkets won&#39t make a clean sweep

Beyond ease of access and lower charges, supermarkets offer nothing new and investors will continue to need advice.

The past few months have seen the launch of a number of fund supermarkets, notably Fidelity&#39s FundsNetwork.

The CoFunds supermarket is due to open in November, while Skandia&#39s multifundshop went online during August.

I find it interesting that not all fund groups have decided to jump on the Fidelity wagon, with the four fund groups behind CoFunds being the most obvious.

Some groups are clearly worried about the effect the new supermarkets might have on their relationship with IFAs. Others are happy to join in with Fidelity and any other credible launch because, as one put it, “only time will tell which supermarket is going to be successful”. Their ration-ale is to be there at the start “just in case”.

The “just in case” strategy is probably a sensible approach. If the UK takes its lead from the US, we will end up with only two or three supermarkets dominating the direct-sales market.

In the US, Schwab and Fidelity lead the way while numerous others have fallen by the wayside because there is not enough business to go around.

But are fund supermarkets new to the UK marketplace? I would say not. Many IFAs have been writing business with insurance providers which offer the multi-manager approach for the past 20 years.

Given that these investment opportunities have been available in the past, what is so new about these online fund supermarkets and what do they actually offer the investor? I can only think of two things:

l Easy online administration which will be of benefit to investors with bigger, more diverse portfolios, and

l Discounts to investors on some of the initial charges on investment funds.

Some people in the industry are questioning whether IFAs will be swept away by such developments. I simply cannot see this being the case.

Currently, only around 19 per cent of investors buy direct (source: Autif, August 21, 2000) and most of this money is going to organisations such as Virgin and L&G which already offer no-load products. That leaves 81 per cent who already call on advisers (be they tied agents or brokers) to help them choose where they should invest.

Many investors need the comfort and advice of a third party before they will take their money out of the building society and invest.

Of this 81 per cent, some may consider buying direct. However, most will retain the services of the IFA. This is probably because they are buying much more of a service. The IFA has to consider many additional aspects other than just the underlying investment

In fact, Fidelity&#39s own research in the US has shown that the emergence of fund supermarkets has actually enhanced broker sales. As soon as investors get the taste for investing, they look for someone to help or back up their decisions. In view of this, I cannot see this new distribution channel having much negative effect on the IFA.

In conclusion, I think that some of the supermarkets will be successful and will be here for a long time to come.

I do not see that the main underlying advantage of the supermarket is particularly new as clients and IFAs have had access to a multi-manager investment approach for the past 20 years.

Most clients will still prefer t odo business via an IFA.


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