Simon Armstrong, managing partner of Saltus, explains why many firms may need to reassess their use of wrap platforms in the post-RDR world...
The first stage of the implementation of the Retail Distribution Review (RDR) is now complete and advisers and product providers have taken the first steps along an ever extending road.
Much of the change to date has focused on advisers’ business structures and how they can interact more profitably with their clients.
At the beginning of the RDR journey, many advisers believed the panacea would be to use a wrap platform. They thought it would solve a lot of their administration issues.
Why one size does not always fit all
After all, their clients’ money could be custodied in one place, the wrap would help them with the risk profiling of investments, provide high quality client reporting and facilitate the adviser’s ongoing payments.
So, the first round of this ‘dating game’ took place and advisers chose their preferred wrap platform
. Then, the convincing sales people at the growing number of competing wraps chimed in, telling the adviser they should also adopt their wrap alongside the one they already had, as theirs had better bells and whistles, and anyway, it would be unwise for the business to put all their eggs in one basket.
The Financial Services Authority (FSA) also became involved, stating in a discussion paper and then in a further factsheet that it also thought one wrap alone could not meet the needs of a diverse client bank. This has led to a situation where adviser businesses are each using multiple wraps.
Who is it helping?
But, what is the real added value to advisers of using a wrap? It seems less likely now that it is the ease of client reporting, because advisers are back where they started in having the assets of their client bank spread across a number of custodians.
It also seems less likely that the reason is ease of ongoing payment, because it is like being back in the old days: the adviser’s ongoing ‘fees’ now come from a plethora of places.
So are advisers now really using wrap platforms because it is genuinely the best choice for the client? For this to be the case, the proposition via the wrap platform must either be a better investment solution than would otherwise be available off the wrap platform or, at the very least, the same investment solution but at a cheaper price.
With the advent of clean fund pricing in the post-RDR world, it remains to be seen whether wrap platforms will offer cheaper access. As for a better investment solution, that depends on which part of the adviser’s centralised investment process (CIP) we are talking about, and also whether the adviser is picking their own investments or outsourcing.
The real nub of it is to honestly ask whether the wrap platform is there to help the adviser or to help the client.
What is clear from the adviser’s perspective is that wrap platforms work well for those clients with smaller case sizes and for uncomplicated cases. As the competition increases between the wrap platforms, and as the inevitable consolidation occurs in the sector, wrap prices will continue to fall, meaning wrap platforms may become the bedrock for the mass market of an adviser’s client base.
This article continues...
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress