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
Consumers' 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
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.
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's investments
are held by the supermarket.
This is not the case with portals, where the customer's 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's records inconsistent with
the true picture of the investor's 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's 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.