You wait half a lifetime for a one-stop online fund shop and then three come along at the same time....
You wait half a lifetime for a one-stop online fund shop and then three come along at the same time. In the last week Fidelity has announced it is starting up a funds supermarket, and so has a consortium including Gartmore, Jupiter, M&G and Threadneedle. The third comes from interactive investor (iii) via its FundsNow website.
So many financial innovators can't be wrong. The idea of an investment supermarket, like the real world equivalent, is its ease and convenience, the range of products on offer, the competitive prices which derive from economies of scale, and all those useful ancillary services, like photo processing, a postbox, dry cleaning and a creche. So far so good.
Fidelity has experience in this line of distribution from its networks in the US, and confident spokesmen say they will welcome any competition to the package of more than 250 funds from 14 providers which they intend to start offering immediately. Such openness bodes well for the future of the industry, if only it were more widespread.
But the initiative is fraught with danger, and not just commercial hazard. Online services promise much but more often than not fail to deliver. As an ordinary member of the investing public, it seems some of the basics are being ignored. If you are a devoted Jupiter investor, you go straight to the company with your cheque in hand; if the best alternative is Perpetual, and Perpetual is not included in the consortium running the site, how does that help the ordinary punter?
In fact, why go to the site at all, even if all the funds you ever want to invest in are represented there? Perhaps, because it is cheaper? Now we're getting somewhere. Fund supermarkets must offer lower fees, because they can, and because it's high time the real story of how big fees erode performance is told. And they should be cut permanently; it is irresponsible to tempt retail investors (inevitably the target audience) with 'one month special offers' or last minute deals.
The Financial Services Authority is already worried at what amounts to the 'impulse buying' which the fascinating immediacy of the internet promotes. Considered investment is to be encouraged but snap decisions are bound to lead to errors, disputes and ultimately disillusionment, which does the industry no good in the long run.
Let's turn to labelling. So far, fund providers have been able to throw a key document at the target, knowing it complies with all the regulations but is marred by impenetrable jargon which provokes eye-glaze in even the most diligent investor. The Plain English Campaign say the financial services sector has a dismal record when it comes to simple, clear communication. One advantage of an online supermarket is that hyperlinks to Glossaries and what the FundsNow site calls 'knowledge banks' are available. Anyone not quite sure what a term means can quickly and discretely find relief. Or can they? Before they enter, a password is required. It doesn't matter that its free, it takes too long to register when you are busting to know. No knowledge, no sale.
What thesupermarket initiatives add up to so far is a superb concept but poor execution. Retailing appears to be a simple business, but it's not. Behind the scenes activity is unrelenting, costly and competitive, Ask the superstores. Offer all the loyalty gimmicks you like, but if the product is not good, cheap, available and reliable, the item past its sell-by date is the provider.
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