To wrap or not to wrap - is it even a question? Not for Brett Davidson of FP Advance, who concludes that wraps are essential to any serious IFA business
I am constantly amazed by the financial services industry and its ability to get away with mediocrity - it is hard to think of many other industries where this sort of approach would go unpunished by competitors for very long.
We live in the year 2006, not 1956, and yet many advisers still do not use financial planning software to run their businesses, life companies can still take six weeks to get a client valuation on a policy and clients can still have a morass of investments and policies that see them receiving 27 statements every quarter telling them an incomprehensible story about their financial status.
The modern advisory business must be driven by technology. If we as advisers are not technologically proficient we either need to become so or hire staff that are. There is just no excuse for not using good quality technology to drive business efficiency and better customer service.
A core piece of technology for advisers is a proper wrap platform. There are compelling reasons why a wrap makes perfect sense at the heart of an advisory business for both clients and business owners/advisers.
Benefits for clients
lKeeping track of their investments: anyone over the age of 45 is likely to own a substantial array of investments and financial products. For most clients this is a source of major confusion and annoyance. How can anyone assess their true financial position if they are unable to know what everything is worth on a regular basis? Most people work very hard to earn an income, but few of us then spend much time making sure what we have earned or saved is working hard as well. In many cases this is because the process of managing our affairs is too difficult. Keeping track of most investments in one place and being able to obtain valuations as often as required - either online or in hard copy - is a major benefit for clients.
lSimplifying the paper warfare: with the use of more sophisticated investment strategies, driven by the need for professional risk profiling and asset allocation, the paperwork involved in setting up, switching and managing a portfolio of investments can be enormous. Use of a wrap service greatly simplifies this process for clients.
lGreater confidence: one of the biggest criticisms of our industry is that we make everything so complex. This creates a sense of unease in our clients. If complexity means I cannot understand something, there is a good chance I won't buy it. By simplifying the process of purchase, management and reporting of investments, we can reduce complexity and increase a client's understanding of what we are doing for them. This helps to increase confidence in the advisory process, leading to more sales and higher incomes.
Benefits for advisers
lAbility to 'hoover up' assets: the key to building an assets under management business is the ability to collect and consolidate a client's assets. Some advisers like to think of this as 'asset hoovering'. A common complaint about the current state of wrap services in the UK is "I can't get all the assets onto the platform". While that may be true initially, experience from Australia and the US shows that, within a number of years, most advisers find the vast majority of assets have migrated to the platform as older policies mature or other major assets, such as buy-to-let properties, are sold. Clients begin to recognise the value of holding assets in one easy-to-manage place.
lIncreased business sale value: by collecting each client's assets onto a common platform, there is a much greater likelihood of being able to sell a bank of clients for a higher price. Venture capitalists and bankers will tell you they pay a higher multiple for assets held on a platform, as they perceive the money to be 'sticky' - that is, it tends to stay on the platform regardless of product changes or changes of adviser. The same views are reflected in the adviser-to-adviser market for books of business, and the prices paid by some networks guaranteeing a sale value for their members.
lGreater efficiency: a major stumbling block to cost-effective and customer-friendly service in our industry is the inefficiency we face daily in dealing with product providers. How many hours per year do you or your staff spend on the phone to providers trying to obtain up-to-date information, or altering arrangements for a client? By consolidating assets onto a wrap platform you reduce your supplier numbers to one. This makes life infinitely simpler for your staff as they deal with the issues of only one supplier. The design of a wrap service also means most of the information you require you can get without a phone call. In many IFA firms, this means either less staff required to service their clients - a direct cost saving - or the ability to service more clients cost-effectively.
For me, the decision was and is a simple one. Wrap must be at the core of an IFA business that is serious about providing a simplified and efficient service to clients, and about growing a profitable business with a significant final sale value.
For more on wraps, turn to the RealAdviser Inquiry on page 52
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From 1 March