For fans of The Hitchhiker's Guide to the Galaxy, sadly the brief for this article was to write abou...
For fans of The Hitchhiker's Guide to the Galaxy, sadly the brief for this article was to write about fund supermarkets. Oh dear, I thought, I've been to the Fidelity Funds Network presentation (who hasn't?), but what on earth am I going to write about?
I know next to nothing about them and they seem to be aiming at a different audience to the traditional buyers of our multi-manager products and services. And then I thought a little more, and I could see why they had asked me.
Fund supermarkets are designed to be the one-stop-shop answer to all an IFA's investment prayers. Multi-manager services and funds of funds also are meant to remove many worries from IFAs so that they can concentrate on their clients and not have to worry about their individual investments. So there must be some similarities as well as differences?
What is the unique proposition that the fund supermarkets are offering? Well, the idea is that you, the IFA, can log on to one website to choose, manage, switch, and monitor all the investments for all your clients with less bother, cost and administrative hassle than has been possible in the past. (Not new, as Skandia has been in this market for at least 10 years except without the website).
No-one seriously suggests that this is all possible right now, but that state of nirvana is seen as the eventual goal. It would therefore seem sensible to test the various propositions in pretty much that order.
First off is the notion that you will be able to use just one website. The evidence from the USA is that there are a multiplicity of small fund supermarkets out there, but that there are two (Fidelity and Charles Schwab) that have the lion's share of the market. Over here, the competition is only just getting going but it can be seen there are already three serious entrants in the shape of Fidelity, Egg and the joint venture Cofunds, all of which have a good chance of becoming serious players.
First mover advantage in this game is seen as crucial. There are also a number of smaller contenders, Inter-Alliance to name but one, who may well surprise. After all it was the mighty Fidelity who, although they would like us to forget it, created the technological disaster that was Fidelity Brokerage (which was roughly speaking, after the same market); big is not always beautiful.
The upshot of all this is that although an IFA may wish to use just one website, whenever a new client arrives who has been using one of the competitor sites, it is likely that although eventually the client's investments may well be transferred to the site the IFA uses, it will not be the only one that he or his administrative staff have to visit.
What about the choice of funds? Probably not one that it is fair to judge right now, no sites offer the entire universe of onshore funds to choose from, but I am sure that over the course of the next couple of years, most of the leading funds will be available from most supermarkets.
There does not seem to be any likelihood of a Skandia-type situation where only certain funds from each group are available, which must be a plus point.
However, it is likely that newer retail fund managers (such as perhaps Artemis a year ago) will be denied to users of supermarkets until they have built some sort of name for themselves.
Those IFAs who like to spot the up and coming stars and invest in them early are therefore likely to be disappointed in this respect. Multi-managers services of course have no such restrictions.
What may have escaped many peoples' attentions is not the choice of funds or groups but the fact that no-one is seriously offering a site on which you can buy or sell ordinary unit trusts/Oeics without them being in an Isa wrapper.
You may have thought that this was an oversight but I can reveal that this is in fact by design.
Design, not of the fund supermarkets choosing it has to be admitted but design because of the antiquated nature of the unit trust settlement process.
I have written about this subject before, suffice it to say that the industry must all move onto Crest settlement for this issue to be settled.
"Back office" parts
I am sure this is the reason why Charles Schwab has not yet thrown its hat into this ring; it does not wish to launch an all-encompassing service until it is sure the processing of the "back office" parts of the deals will be largely automated, as share dealing is.
Despite all the foregoing, the choice given by most fund supermarkets is likely to be enough to satisfy most intermediaries for their first Isa needs.
Assuming we have moved a couple of years on and as an intermediary you have a couple of hundred clients with three Isas each, we get to the slightly trickier question of how do you manage the investments.
What one must always remember is that Isas are not a product, but a tax-reducing wrapper outside an investment.
Specifically, the choice of which underlying investment is therefore crucial, and the ongoing monitoring of it is vital.
One can name a number of things that need to be followed, but to take a topical one, what if the fund manager moves and you have no confidence in the successor.
In the multi-manager funds we run at Lazard, we go on to "red alert" when a fund manager leaves.
If we are not satisfied with the replacement, we will sell the entire amount of that fund, across all our clients. The deal placed with the group is a bulk one, and our system allocates the trades to each client.
If you are an intermediary using a supermarket, I believe that currently no such functionality is
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