Fund Supermarkets Take Hold in U.K.
November 29, 1999
LONDON - Investors in the U.K. can now save a small fortune in charges by buying managed funds and pensions over the Internet and by telephone from U.S.-style fund supermarkets.
Rather than buying funds and other financial products through the traditional routes of independent financial advisors or by going to companies directly, shoppers can now buy from financial supermarkets offering massive discounts on initial charges.
The typical initial charge on a unit trust in the U.K. ranges from four percent to six percent. Investors can now buy the same funds and pay an initial charge of just 1.5 per cent or less.
The U.K.'s second largest retail bank, Barclays of London, was the first to launch a fund supermarket, or exchange as the bank calls it. It beat Prudential of London when it launched the telephone-based service last month. The Prudential has announced its intention to launch a fund supermarket in the near future.
Barclays is offering a range of 45 funds from major investment houses such as Perpetual of Henley and Schroders of London and is charging an initial fee of just 1.5 per cent. A second fund supermarket, which is Internet based, has been launched by AD Associates, the financial adviser of Glasgow. The supermarket, called internetIFA, is waiving all initial charges and is selling unit trusts, Individual Savings Accounts (tax-free savings and investment shelters), bonds and pensions on its site. It makes its money by retaining a percentage of the annual management fee.
"We want to ensure that financial planning becomes as simple as possible, conducted at the client's convenience, either by PC or digital television," said Alex Docherty, managing director of internetIFA.
About five million people in the U.K. have access to the Internet and Docherty predicts that internetIFA will receive monthly visits in excess of 25,000.
"Just one percent of these need to convert and invest an average of GBP10,000 (US$6,100) each to create an annual investment of approximately GBP30m (US$18.5 million)," said Docherty. "There is no doubt in my mind that this type of service represents the future of the industry."
The internetIFA service is aimed at sophisticated investors who know what they want. But, the adviser is also making a help- line available to customers who decide they want advice. These clients will be put through to a financial adviser when they call and will pay standard rather than reduced fees.
So far, Charles Schwab of Birmingham and Fidelity of Tonbridge, the U.K. subsidiaries of the two US companies, have expressed interest in launching fund supermarkets in the U.K. but have given no firm indication of when they might do so.
Most fund managers in the U.K. accept, however, that cut-rate supermarkets will revolutionize the way financial products are distributed in the U.K. The phenomenon is also spreading to continental Europe where consumers usually buy financial services from banks. Germany's Direkt Anlage Bank, for example, has established a fund supermarket and is offering funds from a range of providers with discounted charges. Direkt Anlage is a distributor of a number of funds managed by Henderson Investors, the London based fund manager which is now owned by Australian insurer AMP Group. Henderson says it makes its funds available to Direkt Anlage at a 50 per cent discount, a price the bank negotiated with the manager. It is then up to the bank to decide how much of the remaining fee it wishes to keep and how much it wishes to pass on to customers as an extra saving.