Martyn Ingram of The Investors Partnership, says although Cofunds' wrap offering meets the current needs of advisers, it still has a long way to go
Cofunds' product offering is still a long way from being an all-encompassing wrap, but assets under administration have grown rapidly in recent months and are now passing through the £5bn barrier. Cofunds' policy to date has been to tackle the wrap market in bite-sized manageable chunks. So, while it has been slow in meeting the demands of serious wrap enthusiasts like me, it has gone a long way towards meeting the needs of its target market.
The Cofunds' fund platform was originally targeted at advisers who were looking to use an adviser-friendly fund supermarket platform to consolidate their clients' Isa, Pep, Oeic and unit trust investments. Cofunds immediately gained many friends in the adviser community because it was not making its services directly available to the general public; but Cofunds also won support from advisers because it recognised that they wanted to deal with people they knew. From the start, which is more than four years ago, the team at Cofunds has comprised many people who have had considerable experience of working with advisers. By having an understanding of what advisers really want in terms of service and product offering, and by not offering services to the general public, Cofunds has won a lot of consolidation business from the adviser marketplace.
Taking on consolidation business is fine, but advisers also need to be able to switch existing customer holdings into new funds. While this was an essential part of the original offering, Cofunds recognised that advisers, unlike multi-managers and other full-time investment specialists, needed greater access to mainstream funds offered by high-profile asset management groups. Cofunds provided advisers with access to a number of funds offered by smaller boutiques, but the fund links available needed a reasonable volume of adviser demand to make them viable. Consequently, for the most part, popular funds managed by fund management groups with a strong retail business have been, and remain, the mainstay of the Cofunds business.
Offering advisers access to Isa, Pep, Oeic and unit trust investments was a good starting point, but the Cofunds product range has been slow to develop. The choice of funds available on the platform has steadily expanded, but as the wrap market in the UK has evolved and the competition has become stronger, Cofunds has needed to look at enhancing its product offering. The good news is that an insurance bond product is soon to be launched, while the launch of a personal pension product is expected next year, after A-Day.
The new products are being made available as a result of L&G taking a stake in Cofunds earlier this year. L&G is a multi-channel distributor that had been looking to make a strategic investment in the fund platform concept. L&G took a stake in Cofunds so it would have a new platform for its products in the UK intermediary market. A real wrap platform needs to offer far more than Isas, Peps, Oeics and unit trusts. With L&G on board, Cofunds can start offering insurance bonds and personal pensions, taking them a step further down the road towards having a serious wrap offering.
The Insurance Bond will offer access to about 200 funds, provided by more than 40 fund management groups. Cofunds has been consulting financial advisers to ask which funds they most want to buy through an insurance bond. Many boutique fund managers that I would like to access via Cofunds are not part of the initial line-up, but the offering is quite strong, particularly for a new launch.
The Personal Pension should be launched soon after A-Day, and the business potential of this product is huge. Even though A-Day is only about six months away, the Government still has time to make changes to the legislation, so it doesn't make commercial sense for Cofunds and L&G to bring out the new pension product any earlier.
Cofunds is a business-to-business operator that focuses on business from the UK market via UK-based intermediaries. In bite-sized chunks, Cofunds is building an integrated platform, but I wonder how effectively advisers will use the platform.
When the insurance bond and personal pension become available, advisers will be able to view client portfolios and make changes at the portfolio level rather than at the product-wrapper level. So, while serious wrap enthusiasts like me would like the same fund offerings across all the underlying product offerings, a lot can be done to create a suitable portfolio strategy by accessing different funds through the different products.
For example, New Star Asset Management is one of the management groups that have been lined up to make their funds available through the Insurance Bond. My preferred New Star funds may be different to yours. For example, via the Insurance Bond, I would select New Star UK Alpha over New Star Higher Income in a rising equity market. But, if for some reason New Star UK Alpha wasn't available via the Insurance Bond, I could still gain exposure at portfolio level by taking a larger weighting in New Star UK Alpha, either directly on the platform as an Oeic holding or via an Isa or Pep. I could look across the range of about 200 funds available via the Insurance Bond and find some other holding that I prefer, after having made the decision to invest in New Star UK Alpha on the integrated platform via another product.
The tax treatment of different products can make a fund more, or less, attractive on a total return and risk basis. Because equity markets go down as well as up, in a falling market, equity investment via insurance bonds can be more tax efficient than a unit trust, even for a basic-rate tax payer. While an adviser wouldn't look to manage portfolios with the aim of losing money, it is interesting to note that advisers can lose more money for investors by investing directly into a unit trust or Oeic rather than indirectly into the same underlying fund via an insurance bond, in a falling market. It is important to aim to produce the best overall return with the lowest risk, whatever the direction of the markets, even if you are new to managing integrated portfolios.
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