Choosing the right wrap could make or break your business, says Justin Urquhart Stewart, a co-founder of Seven Investment Management
The sudden explosion of the wrap industry has been remarkable, with more platforms seemingly being introduced than Network Rail. This burgeoning of development has already devoured an astonishing amount of corporate capital, which has been thrown at this business concept while few still find it easy to clearly define.
A general thought is that, to date, somewhere in the region of a quarter of a billion pounds has been spent in wrap developments with as yet remarkably little to show for it. However, over the next three years these new platforms will have to prove themselves as being viable and valuable entities or they will be consigned to the financial services dustbin of those fashion fads that just became financial fiascos. The key question now for professional intermediaries is - can these new structures provide tangible benefits for both them and their clients?
The usual list of benefits to users will be trotted out from all the providers to entice advisers and planners to join the various platforms. However, if we leave those to one side for the moment, there is just one overriding business imperative from which most of the potential benefits will be derived - time.
The most underrated and often the most wasted commodity in business, the management and use of time is probably the most important aspect to the running of a business, and something that many professionals running financial services practices find most difficult to control.
After all, how many of us managing businesses are able to ensure we structure our time to ensure we properly service our clients, plan time for prospecting for new clients, manage the operation and, most important of all, allow thinking time.
Put it another way - if your wrap platform increases costs, people and systems, you probably have the wrong wrap. However, practically from that, there are some specific areas that should be targeted as providing real benefits and thus giving us a clear indication of their suitability.
Regulatory issues, marketing opportunities, back and middle-office costs and service levels - this is a pretty comprehensive range of potential benefits. The question is, can any of these new wonder platforms actually achieve this?
As we have seen from other examples in the world, wraps can help manage a business better and, in effect, assist in moving financial service companies away from a dependence on product sales through to becoming ongoing service providers.
This allows these operations to have a stronger, more substantial business structure based on annual fees. The prime benefit of this is to ensure the business now has a far clearer and measurable value, which at the moment of exit provides a far better chance of realising the intended value.
The next benefit should be that of marketing - not just to prospect for new clients but, far more effectively and easily, marketing to your existing clients. This may sound somewhat counterintuitive but most financial services providers seem to ignore the treasures beneath their noses by not looking at those clients with whom they already have a relationship.
More often than not, whether in stockbrokers, wealth managers or advisers, the client relationship has been based on a previous sale of a product - it might have been an Isa, insurance policy or even a share, but frequently this isolated product event is left as a single sale.
A good wrap structure should effectively provide a powerful customer information tool to not only coordinate data but allow the adviser to segment their client base according to their own aims and requirements.
After all, most clients are not just sad souls on their own - most belong to a gloriously dysfunctional family, most of whom will also need your services across the generations and across the years. That is one of the cheapest marketing plans you will ever find.
In terms of regulatory issues, the wrap structure lends itself very well to the outsourcing of key specialist areas including tax advice and specialist investment areas, which may also have the benefit of transferring not just cost but regulatory responsibility as well. All of this can ensure the adviser firm's costs are aligned with the volume of their business and that fixed costs are kept to a minimum.
So, with improved technology, quite possibly reduced operational costs, more focused and cost-effective marketing and improved business value, it looks as though it should be quite positive for most financial services businesses. Put this lot together and you have what should now look like an effective wrap account.
Financial products are becoming commoditised and advisers need to be careful they don't suffer the same fate. The key differentiator of the professional wealth manager will not be their range of products or their ability to sell them, but their quality and style of service - and this will also be the key to the real value of their business.
This though will be dependant on the style of wrap platforms they want to use - will yours begin with a 'W' or a 'C'? Please make sure yours is not a spelling mistake.
Joined as head of strategy, multi asset, in June
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