The popularity of investing has led new players to set up fund supermarkets, but the UK market will prove unable to sustain all current players. There will be significant changes, including a period of consolidation and a change of focus for some fund supermarkets as the B2B channel becomes the top revenue source.
A report from Datamonitor finds that consolidation is likely in the UK fund supermarket industry.
The UK fund supermarket industry is experiencing greater competitive pressures as the number of players increases, according to Datamonitor’s new report UK Fund Supermarkets. By the end of this year, there will be 20 players in the market, following the launches of fund supermarkets by financial services institutions such as Legal & General, Norwich Union and JP Morgan Fleming.
It is not possible for the UK retail investment market to sustain such a high number of fund supermarkets in the long-term. This is likely to result in a wave of consolidation, such as AMP’s acquisition of iii in July 2001. Those platforms without the backing of large financial institutions and with low customer numbers and assets under management are most under threat.
The focus of fund supermarkets is also expected to develop in the coming years. At present, the majority of fund supermarkets tend to offer products to either direct investors or IFAs, with few catering for both. The B2B channel is expected to become the leading source of revenue in the next five years, meaning that fund supermarkets offering products to direct investors only will potentially lose out.
Generally, B2B players are closely associated with the IFA channel and, increasingly, retail financial institutions such as banks. Yet the potential for B2B players in the fund supermarket arena extends beyond these boundaries. Egg’s recent partnership with Microsoft’s MSN platform shows the possibility of co-branding or white-labelling platforms for Internet service providers. It is important for fund supermarkets to appeal to both direct retail investors and B2B players, such as IFAs and retail banks, in order to attract as many clients to their websites as possible.