No white knight

Wrap accounts have come a long way since they were first introduced.

However, despite this development wrap accounts still have many issues, some of which providers are either unwilling or unable to correct. There are two facts of which I am certain. Firstly, wrap is not a complete back office system, and probably never will be. Secondly, they are not the panacea to all problems in the IFA world, as they try to claim they are, and they probably never can be.

I speak as the managing director of a firm that has considered using wrap platforms on many occasions. Despite conducting a number of beauty parades I'm still yet to be convinced that a wrap can offer anything more meaningful than that which we currently deploy. I equally speak as the owner of a business which has purchased a firm that was totally committed to a wrap platform, yet latterly has decided to migrate clients' assets.

Discretionary management

One of the key sticking points for me is the failure of wraps to offer discretionary management in a manner that can be practically administered. Let us not forget that wraps are businesses, they are not some benevolent white knight that has come to save the IFA from the burden of administration. As profit making businesses, wraps are only interested in assets 'on the platform' and as such they have no interest in allowing discretionary management off the platform - it would simply diminish fees. Equally, while some wraps do claim to allow discretionary management 'on the platform', the restrictions placed and the indemnities required from fund management groups are simply prohibitive. Managing money on the platform on a discretionary basis is currently impractical.

However, a large section of the IFA world has realised that discretionary management is a key way to reduce risk, simply because it outsources asset allocation and daily management of client funds. While the IFA can pick the wrapper or the holding mechanism (SIPP, offshore bond etc), discretionary management within the investment product relieves the IFA of the asset allocation burden. Until wrap platforms can offer discretionary management efficiently, they will not capture the share of the market they aspire to.

While wrap providers seem unwilling to address the discretionary management problem, they are actually unable to address another significant failing which is legacy business. Unfortunately for wrap providers, consumers were actually investing before wraps were conceived. As a result, it would be highly unethical or immoral to ask a client to cash in all of their previous investments just so the adviser could achieve ease of administration!

Legacy business is on a wrap in name only, and I am still to see what the benefit is of putting a piece of legacy business onto a platform, when active automatic valuations are effectively impossible.

In this area there has been little development, and it is unlikely that there will be. To resolve this issue wraps would have to achieve the impossible - the co-operation and co-ordination of insurance companies!

When it comes to legacy business, a good back office system is often just as good, if not better, than a wrap. The long term viability and profitability of a wrap is a much bigger issue than we give it credit for in the evolutionary process.

If wrap platforms are to evolve to better meet adviser needs, then they have to be profitable and the adviser has to be confident that the wrap market will survive in its own right. For example, there is a big discrepancy between the financial planning tools provided by the different provider, largely as a result of scarce research and development resources. IFAs are not uniform animals, and the 'one size fits all' approach has never worked historically in relation to any product or service. Therefore, wraps have to provide a comprehensive toolbox of financial planning tools to meet the needs of as many IFAs as possible.

Re-registration

Finally, one of the ongoing issues affecting the sector is the small matter of bulk re-registration and migration. There is quite a bit of controversy here, with the bulk of smaller providers pointing the finger firmly at the big three market leaders. Equally, the likes of Fidelity claim that the criticism is unjustified, and that the problem lies more with fund management groups.

Whatever the case, clients have to be as free to leave a platform as they are to join it and the only solution would be to have the position where clients could leave a platform without charge. Quite clearly a number of providers are not willing to reach this position in a hurry, because it would be counter-productive to their pursuit of net new business.

I mentioned earlier we had previously bought a business that was heavily committed to one of the main wrap providers. The proprietor, who still works within our firm on a consultancy basis, is now actively moving a certain type of client away from the platform due to an increase in charges. It is now cheaper to move some pension business to an alternative arrangement as a result of a hike in charges by the wrap provider. Thankfully, we are able to migrate business away from this particular platform, but this would not be the case with certain other providers. If clients are not free to move, then they are effectively trapped and at the mercy of future unknown charges. For my money this should be the main focus of wrap providers if they want to evolve their offering.

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