Buying a basket full of funds
Elizabeth Cripps traces the history of fund supermarkets, profiles the main European platforms and goes investment shopping with our panel of European bankers. As financial concepts go, it is a refreshingly self-explanatory one. The fund supermarket, like its namesake, presents the customer with an array of products. All they have to do is look, choose and buy. The range of products on offer can be pre-selected down to a certain number (the up-market delicatessen) or comprise pretty much everything you can buy (the Carrefour or Aldi of the funds world). It’s big business. Approximately E20bn of mutual fund assets in Europe are invested through fund supermarkets, according to research house Cerulli Associates. By 2005 this could be up to nearly E275bn. The industry began in the US in the 1980s. Charles Schwab and Fidelity Investments are now the biggest players. Between them, they account for 90 per cent of mutual fund assets traded on a platform in the US. France, Italy, Sweden, Switzerland and the UK all have fast growing fund supermarket industries. In the UK, German players such as Direkt Anlage Bank, set up platforms in the 1990s. But the market penetration of fund supermarkets varies dramatically from country to country. The table shows size of fund supermarket mutual fund assets under administration for Germany, Spain, France, Sweden, the UK and Italy in 2000, and predicted values for 2005. According to Shiv Taneja, consultant at Cerulli Associates, considerable consolidation of platforms has already taken place since 2000. He expects there to be between two and four supermarket platforms per country by 2005. As the range of supermarkets grows, so too does the sophistication of what’s on offer. Different asset classes and other money-making tools, such as currency plays, are being added to the traditional “pure vanilla” equity and fixed income products. This ties in neatly with the advent of the euro. The flipside is that investors are bewildered by the options available. They want to make the best decision for their money but how can they choose between thousands of funds when they have no idea what half of them do and no time to find out? This, according to Mr Taneja, is why Cerulli expects business-to-business platforms, which sell via investment professionals such as independent financial advisers, to be more successful in the long run than business-to-customer models, which are used directly by the consumer. Many platforms offer online advice and guidance. They provide tools to narrow down the funds using personal criteria. But the Cerulli report cautions: “Despite the growing sophistication of online platforms, the extent and quality of online advice and guidance in Europe is still extremely basic.” And online advice, however prolific, is less intuitively reassuring than personal contact. Platforms have to strike a balance. A recent deal between UK-based FundsHub and German insurer Gothaer is a case in point. It provides an Internet platform for private clients with personal advice from insurance sales agents. The busy shopper gets their very own sales assistant and everyone is happy.
