Supermarkets take on a new look

A US phenomenon is about to hit the UK that could end the headache of choosing the right investment fund and, crucially, there are no extra charges.
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The Independent Online

Choosing the right fund to invest in is a perennial headache. Do you go to an Independent Financial Adviser (IFA) for advice? Should you pay them a fee, or commission on the fund you buy? Or perhaps you should go "door to door" directly to the investment companies themselves in order to sample their wares.

Choosing the right fund to invest in is a perennial headache. Do you go to an Independent Financial Adviser (IFA) for advice? Should you pay them a fee, or commission on the fund you buy? Or perhaps you should go "door to door" directly to the investment companies themselves in order to sample their wares.

All this might soon be a thing of the past, thanks to a US phenomenon about to hit the UK - the online investment fund supermarket.

These consist of internet-based services enabling investors to buy a variety of investment funds from different companies through just one account. In many ways they are similar to self-select PEPs or ISAs except, crucially, they carry no extra charges for investors, as the development of fund supermarkets is being paid for by the fund companies themselves.

Jason Hollands, of financial advisers Best Investment, says: "There are several benefits to investing through a fund supermarket. Firstly, they offer an immense choice of investments. In the past, investors have had to stick to one PEP or ISA provider each year yet few fund management companies are strong in every area so this results in compromises between performance and the need to get a broad exposure across different markets."

Mr Holland says: "By allowing you to mix and match the products from different companies under one account, a fund supermarket enables you to concentrate on the very strongest funds in each company's range."

He adds that a second major advantage of fund supermarkets is that, like Sainsbury's, Tesco or Asda, they offer convenience. There are a number of aspects to this. By having the products of numerous companies located on one website you can more easily compare them against each other. Moreover, the ability to transact with a simple Switch or Delta card and the click of a mouse is much quicker than completing paper forms, writing cheques and then relying on the vagaries of the postal service. This will be of particular benefit at the end of the tax year when a simple postal delay or mistake in not signing a cheque can result in you loosing your ISA allowance altogether.

With fund supermarkets you have the ability to get your ISA completed as late as 11.59pm on 5 April - one minute before the end of the tax year!

The highest profile launch of a fund supermarket so far in the UK has been by Fidelity, the US-based fund giant, which has just unveiled FundsNetwork at www.fidelity.co.uk. Other companies are set to follow. FundsNetwork sets out to provide web-literate consumers with as much analytical firepower and latest comparative market data as possible so they can make an informed decision on what fund they want to buy, at the best price.

The service will offer ISAs (Individual Savings Accounts) and access to OEICs (open-ended investment companies) from more than 14 different fund managers, as well as more than 250 unit trusts. The scope for growth is enormous. There are currently some 1,800 investment funds in the UK and Fidelity says the "ideal" would be to offer the investor access to the entire market.

Other supermarkets are set to open in the UK. The Prudential's online subsidiary, Egg (www.egg.com), has already launched a service. Charles Schwab, the US-owned discount stockbroker, is lining up to launch its own UK funds supermarket soon and Virgin expects to join the fray with its version in the summer.

According to a director of Fidelity, Paul Kafka, the typical upfront cost of an ISA fund in the UK is between 3.25 and 5.25 per cent. He says in his new operation the cost is 1.25 per cent or less: "It's nothing short of revolutionary. In three or five years time most fund transactions will be carried out through supermarkets."

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