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Unwrapping fund supermarkets and wraps

by Sable International | Aug 22, 2011
  • One of the most significant changes to the investment landscape for the average investor in the past ten or so years has been the fund supermarket and the wrap. These terms are used to describe large ‘wholesalers’ of investment funds in the retail investment marketplace.

    In the days of old if you wanted to purchase a Gold Fund from BlackRock Fund Managers  and an equity fund from Newton Fund Managers your adviser would have had to separately open an investment account with each fund manager.

    As a result BlackRock and Newton would have needed the administrative army required to manage thousands of direct to customer accounts along with all the onerous FSA regulation that goes with direct to customer accounts. As such you would have to pay something like an initial fee on your investment of 3.5% to 4.5% to the fund manager and also pay 1.5% per annum to the fund manager to manage your investment. The fund supermarket and the wrap are two solutions to this problem.

    The largest fund supermarket in the UK is Skandia. By holding close to £35bn in assets Skandia negotiates the fund manager charges down to allow you the investor to access the fund at 0% initial and between 0.2% and 0.8% per annum depending on the fund type. So a fund supermarket provides significant discounts but because of the scale they will only deal with FSA regulated intermediaries like IFA’s. This allows you to work with your adviser to select the best funds for your risk profile and requirements and even after you’ve paid him/her for the advice you’re still getting the whole package cheaper than if you had gone direct to the fund manager.  

    It’s worth noting that fund supermarkets and wraps have a few differences. The wrap charges you an annual fee (and sometimes an initial fee) to put your funds on the platform but then gives you the lion’s share of the commissions paid by the fund managers. The fund supermarket charges you almost nothing to be on the platform but keeps these fund manager rebates as their revenue.


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