high competition levels are forcing providers to differentiate service
Fund supermarkets will increasingly compete on value added and quality of service as competition intensifies and homogeneity of offerings level the playing field for online platforms.
With fund supermarkets offering barely distinguishable ranges of funds from broadly the same providers, intermediaries will increasingly seek out those offering the best service.
Two of the largest intermediary-orientated fund supermarkets, FundsNetwork and Cofunds, backed by fund management heavyweights, Fidelity on the one hand and rivals M&G, Jupiter, Threadneedle and Gartmore on the other, have focused solely on fund business, whether Isas, Pep and Isa transfers or unwrapped sales.
While both have attracted their fair share of criticism since launch for various reasons, they have been able to amass over £600m and £130m in assets under management, respectively.
Skandia, Selestia and Transact, the main rivals to Cofunds and FundsNetwork, all offer a much broader array of products, aiming for the one-stop shop offering beyond just mutual funds.
Bill Vassilieff, marketing director of Selestia said: 'The typical fund supermarket only has mutual funds, but if you look at how much business is done in offshore bonds and so on, it is massive.
'It opens up a much bigger market for us and we will continue adding product wrappers until we get them all on board.'
Transact has the broadest product offering along with the most interesting charging structure, receiving money from intermediaries clients rather than the fund groups, while Skandia are more established and Selestia backed by a reassuringly big name with life experience, in Old Mutual.
Transact, Cofunds, Skandia and FundsNetwork are currently able to differentiate their offerings from their other rivals in terms of the simple number of fund groups and individual funds offered.
While Transact is the only service to offer the whole range of UK registered funds from all fund groups, the other three seek to distinguish their offerings through an array of well-documented exclusivity agreements.
The four backers of Cofunds remain absent from FundsNetwork and Selestia and, likewise, Fidelity funds are not available on Cofunds.
The continuation of this deal is under constant review however and some commentators insist that the arrangement could end in April, although both groups remain guarded publicly about the likelihood of such a move.
Elsewhere, Skandia's high profile exclusive arrangement with New Star is set to end in April, while Selestia, one of the platform with the fewest groups on board is gathering momentum, having recently signed up Fidelity and Hendersons to its offering.
Given the backers of Cofunds and FundsNetwork, it is unsurprising that the two have stuck to offering investment products as that is where their expertise lies.
Dave Cowdell, marketing director of Fidelity, said the UK online fund platform market was developing in a similar way to that of the US.
Cowdell said: 'I think in the initial stages, when people were launching their fund supermarkets, fund choice was a very important differentiating factor. We are getting closer to the day when all funds and fund groups are on all of the fund platforms.
'Most platforms have reached a critical mass of fund partners and that is why we are seeing a proliferation of fund analysis and portfolio screening tools. What we will see over the next 12-18 months is intermediaries trying out all of the different supermarkets and choosing the superior service.'
This point is exemplified by the fact MorningStar's fund screening tools are now available on Cofunds, FundsNetwork and from later this month, Skandia, rendering portfolio x-ray facilities far from exclusive.
Cowdell added that other services, such as re-registration and phased investment plans, were also becoming mainstream features and the UK market is therefore approaching a stage where differentiation will come down to quality of service.
At the current stage, Funds-Network still views the range of funds it offers access to as a key differentiator in the short term at least and possibly in the longer term if re-registration takes off.
Angus Duncan, head of investment sales at Skandia, is sceptical of the more is best outlook.
Duncan said: 'We are trying to be pragmatic in the way that we add funds and fund groups to the site.
'We think it is more appropriate to have funds on board that we have ascertained there is intermediary demand for.'
Whatever the answer, it remains to be seen what impact Selestia's offering of life and pension products will have from April when they are added to the fund supermarket.
Skandia has successfully leveraged its long-standing life and pensions experience to offer more or less a one-stop shop to intermediaries.
Duncan said: 'The Skandia online product offering is total and gives intermediaries access to a range of different things, including pensions and investment bonds. These are all very important areas of intermediaries' business.'
While this can be seen as a strong differentiation in services offered, it is mitigated by the presence of Cofunds and FundsNetwork on numerous intermediary portals, such as The Exchange and My Money Adviser.
Through white-labelling agreements and hotlinks, Cofunds and FundsNetwork are able to focus on their specialities, namely the offering of investment funds, while sitting next to providers of a wider array of pension and life product providers.
Vassilieff said: 'Everyone says there are too many fund supermarkets, but there are over 200 fund managers in the UK and the market is massive.'
So, whatever the merits of offering an all-encompassing product range, the winners and losers will still be determined by the quality of service they offer. Whether pensions offerings will help supermarkets win out remains to be seen and will involve a sea-change in how pensions business is conducted.
Cowdell added: 'The pensions market and depolarisation are two wild cards that could have a significant impact.'
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