The first internet fund supermarket to be launched in the UK earlier this year came from Prudential'...
The first internet fund supermarket to be launched in the UK earlier this year came from Prudential's online bank, Egg. The Egg supermarket is an online distribution channel for the unit trust/Oeic's of 12 leading investment houses and provides investors with access to a range of 169 funds with diverging investment styles and philosophies.
As with most internet ideas, this concept was pioneered in the US where players such as Charles Schwab and Fidelity dominate the market. The latter recently announced its intention to launch a website in the UK for investors and independent financial advisers supplying access to a range of over 250 funds, all of which can be held within a tax-free individual savings account. We can expect at least a further two new fund supermarkets to open for business this year with a further tranche launching in 2001.
But what is it about this simple concept that has taken so long to cross the Atlantic that has everyone so excited? The fund supermarket, as with all other business practices on the internet has clear benefits for all concerned - the manufacturer, the distributor and the investor - but in order to understand what the benefits are, we have to understand how it works.
Just as when we shop at our local supermarket for the weekly groceries we expect to see a diverse range of products to suit all tastes, requirements and budgets.
We would be very disappointed to find that all there was on display were shelf upon shelf of baked beans from one manufacturer. We want to see a variety of choices based around the humble baked bean - own brand, the ubiquitous Heinz variety and 'beans with a theme'.
The same holds true for the fund supermarket. It has to ensure that all preferences of many different investors are catered for, hence the invitation to 10 or so competitors to share the supermarket site and proffer complementary products that add diversification to the selections presented to the consumer.
The curious investor logs on to the Egg website safe in the knowledge that, first, Egg is equipped with the latest encryption technology and secondly, Egg itself is regulated by the Personal Investment Authority. In addition to simply providing a portal of investment access, the fund supermarket has also included a raft of tools to better equip the less sophisticated investor.
Before a share has been bought the investor is led through a cornucopia of options designed to put the investor in a 'fully informed position to make well-informed decisions'. From fund details - current holdings, favourite funds and 'My ISA's' to fund performance and tracking performance - where a selected fund can be compared against another fund or index; fund search where a detailed list of criteria can be entered into a search engine to come up with the desired fund to suit the individual's requirements; to fund manager information - factsheets on the funds offered, fund managers report & profile and key features for each fund. Once a decision has been made on the final selection, the orders are sent electronically to the fund supermarket administrator, formerly known as the back-office, provided that an online Egg savings account has first been opened in order to facilitate the payment for any investments made.
Range of functions
As administrator to the Egg fund supermarket, Mellon Trust provides dealing and registration services on a straight through processing basis. Egg's website is linked by an e-commerce gateway to Mellon's investor servicing system and all transactions - purchases, confirmations and income distributions, statements, and so on, are automated. During the testing phases it was confirmed that the system could process 1,500 real deals in two minutes and 19 seconds, a day's work for over 20 people in a paper-driven office.
Web portals and straight-through-processing enables the administrator of a fund supermarket to provide a range of functions:
l acceptance of deal instructions electronically from the fund supermarket web-site;
l aggregation of deal instructions and the forwarding of these to the respective fund managers;
l disaggregation of allocated units, equalisation and dividends;
l settlement of all deals;
l maintenance of registers and static client data;
l production of daily file extracts and static client data;
l production of daily file extract for the client's data warehouse;
l reconciliation of all units/shares issue, cash and dividend.
In addition to the clear benefits in client service, this offers significant savings - in perhaps as much as 70% of administration and processing costs can be reduced - savings from which all parties will benefit.
From the investor's perspective the fund supermarket provides easier, lower cost access to a range of investment managers and products than traditional investment methods.
Switches can be made from one fund to another, by switching quickly and directly, as requirements alter or market circumstances change, an investor's money remains in the market rather than trapped.
For the financial services providers the ability to secure instructions and service clients fully over the internet from website to nominee processing produces cost savings, greater processing efficiencies and most importantly access to a wider audience than could be reached before.
Research shows that the number of shares traded on the internet is doubling every three months and will hit 15% of the entire retail market during 2000. With 23% of UK households now with access to the internet and 40% of those households fitting into the socio-economic AB category, web based banking is expected to attract eight million users by 2010.
The pace of change is rapid and the implications far-reaching. Financial service providers who have recognised that e-commerce can be util
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