The future of fund supermarkets 2007

The Future of Fund Supermarkets examines developments in international fund supermarket sectors and assesses the distribution channels that are in operation. The report analyzes both the current and possible future trends of the industry.
Report Highlights

Fund supermarkets are a very efficient system to distribute funds through. Generally fund supermarkets have low administration costs, often do advertising and marketing themselves and have large networks of financial planners or bank branches to distribute from Product and service development is influenced by the needs of financial advisors as well as consumers. Fund supermarkets already offer advisers a number of advantages. For instance, they allow them to dedicate more time to getting to know their clients and to understanding their financial goals, by reducing the time spent on transaction processing. Fund managers should look to fund supermarkets as a source of information about client’s investment needs and demands in relation to funds. The financial planning networks associated with fund supermarkets, have firsthand dealings with clients and therefore represent a key resource to fund providers
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Overview 1
Catalyst 1
Summary 1
Executive Summary 2
The global asset market is dominated by the US 2
The Australian market tends to have a more focused range of fund options 2
The UK and US markets are dominated by a few large players 2
In mainland Europe most competitors are retail banks 2
Fund supermarkets will continue to be an important distribution channel for managed funds in the future 2
Technological advances are driven by the requirements of advisers 3
Intermediaries will require dedicated services and enhanced platform capability 3
Marketing of products ranges will become more crucial as platforms need to differentiate their offerings 3
Platforms must take steps to address the potential disadvantages of fund supermarkets 3
The future of supermarkets is bright 4
The evolution of fund supermarkets into Wraps 4

Market Background 8
The global asset market is dominated by the US 8
The US dominates the global market for mutual funds 11
Germany's mutual fund industry is worth USD3,817billion 11
The mutual fund industry in Spain is worth EUR321 billion 11
Superannuation funds dominate the Australian market 11
Distribution dynamics 12
The Distribution landscape varies dramatically across the markets assessed in this study 12
US multiple distribution channels have increased competition 12
65% of the funds in Spain are distributed through retail banks 12
In Germany half of all mutual fund assets under management is attributed to retail banks 13
Australia's biggest banks also dominate the fund supermarket space 14
The target customer base for fund supermarkets varies across different countries 15
In the US and Australia fund supermarkets are targeted at an older customer base 15
The average US fund supermarket customer is middle-aged with an above-average income 15
The average Australian fund supermarket customer is middle-aged and investing for retirement 15
In mainland Europe fund supermarkets are targeted at a younger customer base 15
Spanish fund supermarket clients are at the opposite end of the spectrum; young and technologically savvy 15
Fund supermarket clients demand control and accessibility 15
REgulation 16
In Australia, regulations regarding superannuation are crucial to market development 16
Australians have benefited from the recent superannuation changes 16
Individuals aged 60 and over can access their superannuation benefit tax-free 16
Limitations on concessionally taxed superannuation contributions have changed 17
Post- tax superannuation contributions are limited to AUD150,000 per annum 17
The transitional AUD1 million contribution limit served to boost fund inflows 17
Pan-European regulations have an impact on the development of all distribution channels 17
Upcoming EU legislation (UCITS directive and MiFID) facilitates market development and enhances consumer protection 17
MiFID allows fund managers and distributors improved flexibility, but also introduces new obligations 18
Competitor Focus 19
The Australian market tends to have a more focused range of fund options 19
There is a similar range of funds available in all other geographies 19
The UK and US markets are dominated by a few large players 21
Then a few small niche players in the UK who either white-label the larger supermarkets or offer their own funds 21
In mainland Europe most competitors are retail banks 22
Distribution Dynamics 23
The main driver of demand for fund supermarkets will continue to be the preferences of advisors 23
Fund supermarkets will continue to be an important distribution channel for managed funds in the future 23
The features of the fund supermarkets will evolve to meet advisor needs 23
Technological advances are driven by the requirements of advisers 23
The success of fund supermarkets is dependent on the efficiency of this technology 23
Intermediaries will require dedicated services and enhanced platform capability 24
Fund ranges through supermarkets will become more complex and diverse 24
Supermarkets are sustaining their growth by offering access to new fund structures and providing complementary services 24
Volatility in the markets will result in an increased customer demand for structured and alternative investments 24
Interest in alternative asset classes is growing 24
Fund supermarkets are pursuing growth by offering banking services and investing in bricks and mortar 25
Strategies for choosing funds will continue to grow in sophistication 25
The cost of funds have fallen across all markets and this trend will continue 25
Marketing of products ranges will become more crucial as platforms need to differentiate their offerings 26
Relationships should be built with advisers and other distribution channels 26
Leading supermarkets in Germany are helping intermediaries to grow their businesses 26
White labeling of fund supermarkets through third parties is a key way of targeting new customer segments 26
Direct distribution and value-added services will shape the future development of the fund supermarket sector 27
Fund managers will continue to rely on direct sales, although supermarkets represent a key element of heir distribution strategies 27
Platforms must take steps to address the potential disadvantages of fund supermarkets 27
The future of supermarkets is bright 28
The evolution of fund supermarkets into Wraps 28
APPENDIX 29
Definitions 29
UCITS 29
MiFID 29
Definitions 29
Asset manager / Asset management company 29
Bank 29
Collective Investment Scheme 29
Exchange-Traded Fund 29
Fund of funds 30
Fund supermarket 30
Hedge fund 30
Non-retail market 30
Retail market 30
Structured products 30
UCITS 30
Methodology 31
Further reading 31
Ask the analyst 31
Datamonitor consulting 31
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Table 1: Total retail assets under management, 2002-2006, USDm 9
Table 2: Total retail mutual fund assets under management, 2002-2006, USDm 10
Table 3: Number of funds and number of suppliers hosted by platforms surveyed in all geographies, 2007 20


Figure 1: The US dominates global retail asset markets 8
Figure 2: The US mutual funds amounted to USD 9billion in 2006 10
Figure 3: Fund supermarkets account for a very small proportion of fund assets in Spain today 13
Figure 4: Retail banks dominated Germany's mutual fund sector in 2006 14
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