How fund supermarkets work
By Michael Trudeau
How fund supermarkets work
Learn how fund supermarkets provide a one-stop shop for do-it-yourself investors
Investing your money on the stock market is a big decision. Many people won't feel confident with the complexities of investing, and look to a financial adviser to help them make decisions.
Others, however, will be tempted to make their own investment decisions, without taking professional advice. If this sounds like you, fund supermarket can offer a one-stop shop for DIY investing.
Fund supermarkets offer investors access to a wide range of investment products, the ability to monitor your portfolio, invest tax efficiently and reduce administration.
Video: What is a fund supermarket?
A fund supermarket is an online 'platform' that allows investors to buy and hold a range of funds from a host of fund management companies together in one portfolio. To learn more about what they offer, click the video above.
Fund supermarkets often provide extensive research and information on each fund, including which companies each fund manager is invested in, historical and recent performance figures and analysis of the investment styles adopted by fund managers. Most allow you to invest over the phone.
The crucial point is that fund supermarkets are designed for people who are making their own investment decisions. This is referred to as ‘execution only’.
Fund supermarkets: what is 'execution only'?
The Financial Conduct Authority describes 'execution only' as a 'transaction executed by a firm upon the specific instructions of a client where the firm does not give advice on investments relating to the merits of the transaction and in relation to which the rules on assessment of appropriateness do not apply.'
In simple terms, this means you're wholly responsible for selecting and buying investment products, and that an investment broker will only place your money into the products you choose, rather that telling you which investments to pick.
A broker will not recommend products based on your personal circumstances, and will only give you information that could help inform your decision.
Fund supermarkets: what investment products can you hold?
Some fund supermarkets will only offer unit trusts and OEICs (open-ended investment companies).
But many others also offer access to stock-exchange listed investments, such as shares, investment trusts and exchange traded funds (ETFs). You may even be able to carry out spread betting or manage your pension through a fund supermarket.
Fund supermarkets: fund charges explained
Fees are a major consideration for investors. A good fund manager may help to smooth market turmoil or achieve market-beating returns, but with annual fees traditionally around 1.5% or more, they have taken a hefty chunk out of the profits they help to deliver.
Following the FCA's ban on commission, fund charges have come down, with 0.75% the new norm. On top of this, fund supermarkets, just like financial advisers, will add a separate charge for their service, either as a fixed annual fee or a percentage of assets.
Find out more: Fund supermarkets charges - all you need to know about fees
Fund supermarkets: investing tax efficiently
As well as offering access to funds and other investments, fund supermarkets allow you to put your investments inside a tax-efficient wrapper - normally a stocks and shares Isa or a self-invested personal pension (Sipp).
Within these tax-efficient wrappers, dividend income is untaxed, even if it exceeds the annual dividend allowance (£5,000 for 2016/17). Interest from corporate bonds and gilts, and from funds that invest in these assets, is tax free. There is no capital gains tax on any investment profits within either Isas or Sipps.
Fund supermarkets reviewed
To help you find the right fund supermarket, Which? has created unique review pages for 15 of the major providers in this market. Our reviews tell you how the different companies charge - and how much - and this is complemented by our unique customer satisfaction ratings, in which over a thousand Which? members have rated fund supermarkets for customer satisfaction and other aspects of this service.
- Last updated: January 2017
- Updated by: Michael Trudeau