Stuart Reilly, head of Sipp and wrap marketing at Abbey Wealth Management, considers the progress of the wrap market in the light of the results of this month's RealAdviser Inquiry
Those of us - providers and financial advisers alike - who have been committed to the concept of wrap from the beginning, have always held to our view that it will be the future of adviser-led wealth management in this country. Nonetheless, confirmatory evidence is always both welcome and heartening, and the results of RealAdviser's survey provide it in abundance. It also provides some instructive - and possibly cautionary - pointers for providers.
According to Forrester's latest forecast, as at April 2006, the UK wrap market is predicted to reach £190bn by 2009 - an average year-on-year growth of more than 416% a year in its first six years of existence, which would see wraps accounting for around 45% of all adviser-led investment and pensions business.
These predictions seem to be well-supported by the responses to the RealAdviser Inquiry. Asked about changes in their level of wrap usage over the last 12 months, 43% of respondents reported their use of wrap platforms had increased sharply over the period, 80% reported an overall increase in their wrap usage and one-third of the financial advisers who do not currently use a wrap service at all were planning to do so within the next 12 months.
These are reassuring numbers for wrap providers - especially the existence of a large body of likely wrap adopters who are ready to come on-stream in the next year. The estimates of current actual wrap usage are even more impressive and clearly confirm the concept has already gained ground rapidly. Almost a fifth of respondents stated wrap currently accounts for more than three-quarters of their investment business - and 47% are now transacting up to half their through-put via wraps.
These numbers also appear to demonstrate a deepening understanding of wraps and their appropriateness. The only word of caution in interpreting the results of RealAdviser's survey would be that, as in all discussions of wrap, here the waters seem in danger of being muddied by the extreme diversity - in scope, functionality and sophistication - of the various types of service that are regularly lumped together under the generic description of 'wrap'.
Currently, the term is widely used to cover four separate types of service - in ascending order of functionality they are fund supermarkets and catalogues; limited open architecture platforms; wraps/master trusts; and, finally, pure open architecture platforms, otherwise known as full wraps.
Although only pure open architecture platforms - which are offered by just a few providers, including James Hay - allow access to the whole of the market from a single point, all are generally perceived as wraps. Our concern is this blurring of the lines of distinction could impair appreciation of the benefits of a full open architecture platform, hindering the most effective use of wraps and unnecessarily limiting their spread.
The prime advantages of using wrap, as perceived by financial advisers, are particularly interesting - as are the concerns. The main potentially negative issue - the overall cost to the client of investing via wrap - was largely countered by the 91% of respondents who were happy with the pricing structures in the market.
This is simply an indication of the seriousness with which financial advisers treat the business of balancing the overall cost of the service against the potential benefits to each client, in order to advise them correctly. Cost is only ever an issue in the absence of value, and that interpretation squares solidly with the FSA's thematic study of wrap earlier this year, which commented on the high standards of good practice it had found among advisers.
Regarding benefits to a financial adviser's business, the four greatest areas of improvement were identified as convenience, administration, control and ability to transact. These results confirm the profile we already had of early adopters - that they primarily want to simplify their business process, through reduced paperwork, consistent client management and streamlined reporting procedures.
The top three improvements in the client experience provided by wraps were the client's ability to value a financial adviser's services as a financial adviser, better understanding of their portfolio and the ability to value their portfolio for themselves.
Clearly, the latter two factors will mean a more informed client and a more collaborative working relationship, while the former should enable the financial adviser to strengthen and consolidate client relationships by delivering value in terms of advice and service. Once again, when the client knows exactly what they are paying for the service, it comes down to value rather than cost.
This brings us to how James Hay Wrap - or Abbey Wrap as it then was - fared in the survey, and we are pleased to note the survey produced some very encouraging statistics and comments that appear to vindicate our own strongly-held view of what a wrap service should really be about.
To begin with, we are pleased our service was rated 'very good' or 'good' by 57% of the advisers who had used it. However, it is worth noting that the survey was carried out prior to our first major platform upgrade programme, which we launched in October and introduced significant functionality, further freeing up adviser time and improving speed and accuracy of service.
Among the specific reasons for using James Hay/Abbey, transparency was cited as number one, followed by service and pricing, along with investment choice as a contributing factor. Transparency is key to the client proposition and is the prime requirement of any true wrap service.
That is why we have made it the fundamental basis on which James Hay Wrap is engineered - and why, despite the equanimity of financial advisers in the survey with regard to charging structures, we feel much of the industry still has some way to go to shake off the old, product-based heritage of opaque and complex charges. If wraps can become a byword for transparency, across the board, then their progress would be even faster.
The UK wrap market is still - if no longer quite in its infancy - at a very early stage of growth and has huge potential for development, not only in scale of business but in the sophistication and functionality of the services it provides. The key will be investment.
As a provider, we are committed to investing in the ongoing development of our platform in order to deliver the best possible service to advisers and their clients. The upgrade package we implemented in October comprised 29 significant enhancements, ranging from read-only client access to the platform and secure messaging, to automated processes such as bulk cross-client dealing and switching online. Further enhancements to the platform will continue to come on-stream during 2007.
We are also continuing to invest in service and support, and are currently expanding our business development and implementation teams on the ground to provide even greater depth of regional support in helping advisers - both in making the move to wrap and in exploiting its possibilities as rapidly and profitably as possible.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress