ONE of the most significant changes to the investment landscape for the average investor in the past decade or so 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 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 them. As such you would have to pay an initial fee on your investment of something like 3.5% to 4.5%, and 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 £35 billion in assets Skandia negotiates down the fund manager charges to allow investors 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 it only deals with FSA regulated intermediaries like IFAs. 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.
Fund supermarkets and wraps have a few differences. The wrap charges an annual fee (and sometimes an initial) 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 its revenue.
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