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Trolley good show

The supermarket has become a one-stop shop where you can buy almost

anything while saving time and money.

Now, a new type of supermarket has arrived where people can go to plan

their financial future and fill their trolley with unit trusts, Oeics and


But not all fund supermarkets are equal. How do you tell them apart? What

are the major differences? As an IFA, which model will you choose for your

own business?

Consumers&#39 rapid acceptance of the internet means businesses are racing to

complement – or even replace – their normal sales channels with online

distribution. For many companies, websites will be no more than online

proxies for their real-world equivalents. For others, they will represent a

fundamental shift in the way they structure, operate and ultimately profit

from their business.

Online fund supermarkets are a compelling example of synergy in a truly

classical sense. Rarely have two distinct concepts relied so much on each

other for their mutual success. The distribution of investment products

such as Isas is approaching natural limits in capacity and requires

innovations such as financial supermarkets to advance and meet future

consumer demand for choice, value and flexibility.

The race is already on to deliver a reliable, functional supermarket

platform for investment products. By the end of this year, at least three

fund supermarkets will be available in the UK. This number could easily

treble by the end of 2001.

Then, of course, there are a whole host of adviser websites and portals

already in existence offering investors a variety of online investment

services. What are the major differences between the types of services


Brochure dispensers

The electronic provision of application forms is the most common use of

the internet in the investment industry.

The adviser or fund provider invites the browser to download an

application form from their website but that is as far as the electronic

aspect of the transaction goes.

After the application form is printed off, the investor re-enters the

paper world and must rely on snail mail to return the application form.

While this model is not particularly sophisticated, it has one major

advantage – it is easy to set up and the cost of entry is low. In this way,

the internet is allowing the small and the large to compete together side

by side in a way that was not previously thought possible.


Some websites, often referred to as portals, take the online application

process one step further. An adviser website with links to a variety of

fund providers with online account-opening capabilities is a good example

of a portal.

By using a portal, a customer can experience the same satisfaction and

speed of transaction that he may already have come to expect from online

shopping for products and services from other industries.

Some portals have quite sophisticated entry systems that can store records

of accounts and offer their customers regular online valuations. In this

respect, portals are far removed from the world of dispensing brochures and

application forms over the web and, while the set-up costs may be higher,

these are more than offset by the cheaper method of online distribution.

Fund supermarkets

A true fund supermarket offers many of the same features as a portal. It,

too, can offer online account opening and access to multiple fund providers

but there is one big difference – the records of the customer&#39s investments

are held by the supermarket.

This is not the case with portals, where the customer&#39s records are kept

by the fund providers.

This sounds like a rather pedantic point of difference but it is

absolutely vital. Only by holding comprehensive customer records can a

supermarket offer true account management functions such as consolidated

statements, real-time valuations and portfolio breakdowns.

It achieves this by investing on behalf of its customers through a nominee

account, thereby ensuring that the fund providers pass on all investment

details regarding each client account.

A portal, on the other hand, is only a conduit through which an investor

gains access to a fund provider and, as such, its client records will never

be entirely reliable. Top-ups, partial redemptions, dividend payments and

tax credits will contribute to make the portal&#39s records inconsistent with

the true picture of the investor&#39s portfolio.

Some might argue that the location of the record keeping does not matter

and it will not affect investors who are just shopping on price.

But IFAs know that a fundamental area of difficulty for any investor is

gaining an oversight of their investments. Invariably, this is one of the

main drivers for an investor to seek advice in the first place and usu ally

forms the most common base of discussion in a client review.

A fund supermarket will permit an adviser to retrieve all the information

online in a consolidated, easy-to-use form. When a decision is made to

purchase, the transaction will seamlessly bypass the adviser&#39s traditional

paper-based back office, saving cost, time and hassle.

A true fund supermarket is arguably the most comprehensive online trading

and account management model. But it is also the most complex and expensive

to set up.

Building an account management system that can offer clients real-time

information on their investments requires a very substantial investment.

The current true supermarket players have spent years developing their

products and only time will tell which ones are destined to succeed.


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