How a supermarket can help you understand how an investment platform works

24/05/2023

When you’re creating an investment portfolio with your financial adviser, a lot of the discussions might revolve around the available choice of assets you’ll have with a certain investment platform.

Investment platforms can sometimes be tricky to understand. You might not fully understand their purpose, what it means to buy investments through one, or what happens if your chosen platform fails entirely.

Investment platforms are often referred to as “fund supermarkets”, a name that’s particularly apt as these platforms do share a number of similarities with the shops you might go to for your groceries.

You may have heard this analogy when you first started working with us at Douglas White Financial Planning (DWFP), because it can actually be extraordinarily helpful in understanding how an investment platform works.

Read on to find out more.

Starting with a list of what you need

When you go to the supermarket, you’ll nearly always start by creating a shopping list. It is of course possible to turn up and wander around until you find what you need, but it’s often more cost- and time-effective to make a list before you arrive.

The same can be said for your investment platform. Before you start looking at and buying investments, it’s first often sensible to set goals for what you want your investments to achieve.

If you’re a client of DWFP, you may recall this process from our initial meetings. We’ll have discussed how working out what’s important to you and setting goals for the future can refine your focus and help you make the most sensible decisions with your wealth.

Your life goal “shopping list” can then influence how you choose to invest in the fund supermarket, selecting investments that contribute to your wider plans.

Choosing a small or large shopping trolley, or a basket

The next decision you make when going shopping will be outside the shop, when you choose between a small or large shopping trolley, or a basket.

When you’re selecting your investments, you will also decide where you want to hold them. This might be between a general investment account (GIA), ISA, or perhaps your pension.

However, unlike choosing between a basket and a trolley, this is a significant choice that will determine key aspects about your portfolio. For example, this could affect:

  • The cost of your portfolio
  • How tax-efficient your investments are
  • When and how quickly you’ll be able to access them in future.

As a result of these factors, it’s important to choose the right one that suits your needs and circumstances.

Accessing the range of different products you want

The reason that supermarkets exist is to help you access the products you want without having to go directly to the producer.

For example, it’s very unlikely that you’d go directly to Kellogg’s for your cornflakes or to Heinz for your ketchup.

This is exactly what an investment platform offers. Instead of having to go directly to companies to purchase shares or bonds, you instead can buy your investments all in one place.

Of course, when you’re shopping in a supermarket, you also have the option of buying individual ingredients, or choosing a pre-made ready meal. You might choose the former if you want to create a bespoke meal from scratch, or the latter if you’re looking for convenience.

Similarly, investment platforms offer the choice of choosing individual assets and creating a portfolio that suits your needs, or “ready-made” funds and other packaged investments – it simply depends on whether you want to make something bespoke yourself, or you’d prefer convenience.

What you also need to bear in mind is that the supermarket isn’t responsible if you don’t like a meal. Ultimately, it will be your responsibility if you combine the ingredients and then don’t like what you create.

This certainly extends to your investments – if your shares, bonds, or funds don’t perform as you want or expect, the investment platform is not responsible.

Supermarkets offer a certain amount of consumer protection

One aspect of investment platforms that’s often misunderstood is the amount of consumer protection you have if the business fails.

Think about what would happen if your chosen supermarket were to fail. Imagine that you’ve just returned home with your shopping bags when you hear on the radio that the chain has gone bust.

In this case, the food you’ve bought is already yours, and the supermarket owners aren’t going to come round and ask for it back to cover their liabilities.

All it means is that next time you go shopping, you won’t be going to that supermarket to do it.

This is true in the case of the investment platform too because, while the platform may be where your investments are held, that doesn’t mean it can use your money to clear its own liabilities.

Your funds and assets will be ringfenced away from the platform’s own. That means it cannot use them to pay off debts, but instead must arrange for your assets to be held elsewhere.

The overwhelming likelihood is that another company would come in to buy the failed provider and hold your investments for you – indeed, while it isn’t exactly the same, this is similar to how JP Morgan recently acquired First Republic Bank in the US.

So, rather than losing money as a result, your assets would instead be transferred to a different platform. Knowing that you have certain protections like this can give you peace of mind that your money isn’t tied to the success of the platform.

Going with a personal shopper can make it easier to make informed decisions

When you’re in a supermarket that you’ve been to before and you know your way around, it can be easy to get what you need.

But if you go to a different store that you’re less familiar with, or you want to try something new but aren’t sure where to start, it can be quite overwhelming. You might have to ask for assistance in finding certain products, or you could even ask a personal shopper to pick up your shopping for you.

This is how your financial planner helps you with your investment “shopping”. You can certainly choose your own investments, but having an expert there to guide you can help you make even more informed decisions that align with what you want to achieve with your money.

A planner can add immense value to your experience with an investment platform. They’ll ensure that you choose the most appropriate assets in your circumstances, and that your portfolio remains on track to help you reach your future goals.

Get in touch

As clients of DWFP, we act as that personal shopper to help you choose the investments that most align with your goals for your wealth.

If you’d like to find out more about what we do, please do get in touch. Or if you have family or friends who would like help managing their money, we’d be more than happy to speak to them, too.

Email info@douglaswhiteltd.com or call 0151 345 6828 today.

Please note

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.