"Wrap accounts seem to be everywhere these days - as is the assertion that advisers will not be able to run their businesses effectively if they don't use one. However, by my count, I have the choice of a wrap offered by an investment management group, a life and pensions company, a consortium of advisers or a fund supermarket. Are there any actual differences between these 'types' and would the panel venture an opinion as to which might be more appropriate?"
karen forrest, adnitor
There is currently a wide range of platforms and many more will be coming to market in the next year. This year, asset growth on platforms reached £35bn and adnitor expects it to reach £84bn by the end of 2007.
Indeed, 'wrap' is not a word adnitor uses anymore. We now use the phrase 'intermediary platforms' because we have seen the emergence of many types of platforms in the UK market that cannot be easily labelled as wrap.
Some stem from life companies, some from independent providers such as 7IM and Transact, and recently offerings have surfaced from administration providers such as BNPP and Capita. Additionally, along with the platforms provided by fund supermarkets, such as Cofunds and FundsNetwork, we are now beginning to see adviser-owned platforms emerging as well - examples being Ascentric and Nucleus.
Many advisers are now clear about the direct benefits a platform will bring to their business such as increased revenues, embedded value, developing loyalty with clients and driving efficiencies in business processes. In fact, results from a survey conducted in November 2005 by adnitor revealed that more than 70% of advisers believe their business will be held on platforms within two years.
However, the process of selecting and migrating to the right platform or platforms is not an easy one for advisers. The offerings have developed significantly over the last year as additional wrappers such as bonds and Sipps have been added, along with extra services. As the market develops, so these will continue to develop, however, what it comes down to is what is right for a particular adviser business and, to be honest, there are less apparent differentiators. Most platforms have a wide fund range and similar tax wrappers. Future differentiators are likely to lie in pricing and service.
In the context of selecting a platform to use, we break the choice into five key areas - service, coverage, pricing, functionality and total cost. However, before any selection can be made, it is critical to understand what the shape of your business will be - tied, multi-tied, independent - as well as the type of client mix, number of clients, pricing strategy and so forth.
If you are interested in looking at platforms side by side, you can log on to www.whichplatform.com, which shows the latest information related to all the current platforms in the UK. As a final note, if you are an investment-oriented adviser, there are many benefits that can make the process of moving to a platform environment inherently worthwhile.
www.adnitor.combrett davidson, fp advance
I completely support the use of a wrap platform within an adviser business as a way of creating greater value for both advisers and their clients. To be effective in managing the wealth of a significant number of clients means having access to technology that facilitates this. Using just manual methods will not be good enough and will make your cost base too high.
Deciding on which wrap partner to use will be a decision that varies depending on your business process and your commercial ambitions. If you do not have a clear idea of what your business process looks like, it will be very difficult to evaluate the different offers that are around. All versions will have pros and cons and it is only when you are crystal clear on what you require that the choice becomes somewhat easier.
For example, a business that builds bespoke portfolios for its client may have a need for access to a wider range of fund managers and direct shares than a business that uses a fund of funds or manager of managers solution.
Knowing the way your business process runs will also determine which technology partner you use for your financial planning and client management systems. Do these talk to your preferred wrap provider? Effective communication between systems is critical.
Adviser-owned wraps are likely to become more prevalent and I am a supporter of the concept. There may be commercial aspects to this arrangement that you value - particularly an existing group of potential buyers for your business. However, in my Australian adviser business we were not a member of such a group and I don't believe it hampered our final business sale value at all.
It may be that the owner of the platform matters for some advisers and not for others. This will largely be driven by personal preference and past experiences of good or bad service.
At the end of the day the final choice will be a function of a lot of interrelated decisions, not just one simple criterion. Consolidation is likely in the wrap market as it matures anyway. Large players tend to buy up the smaller wrap players if they are successful in gathering assets. This is not something to be overly concerned about as parent companies with deep pockets are essential for the long-term viability of your wrap partner.
www.fpadvance.com neil shillito, sg wealth management
Confusion reigns - and that is just among the providers. There is great debate within the financial services sector as to what the difference between all the offerings is - if any - and many advisers are unsure whether to embrace these relatively new concepts or not.
Whatever terminology one uses, the idea is the same and that is to provide a central 'platform', on which all of one's investments can be held rather than the 'old' model of having, say, 10 different investments administered separately by 10 different providers.
This has numerous advantages for both adviser and client, in that portfolios can be viewed online at any time and investment values are updated on a daily basis. Allied to this is the ease of administration, with fund sales and purchases conducted electronically rather than by post.
As the market evolves, we inevitably find that not all providers market their services the same way - competition means different companies will seek to differentiate their offering from other options. The fact different names such as wraps and fund supermarkets or fundmarkets abound, is testament to the way different providers see their propositions and where they are positioning themselves in the market.
Fund supermarkets or fundmarkets tend to work on the basis of negotiating deals where the product providers pay away a proportion of their charges to the operator in recognition of the fact they are then relieved of their administration burden.
At the same time they reduce their charges to the end-consumer because of economies of scale, with the platform providers placing significant consolidated deals rather than endless small amounts. The problem with this approach is that the list of 'acceptable' investments might be limited if terms cannot be agreed and the adviser is still being paid by the product provider rather than the client.
Wrap accounts on the other hand tend to be quite different and certainly attract those advisers who are truly independent and unbiased in that they charge fees for their services rather than taking commissions for the sale of investment products.
With wrap accounts it is the client who pays each of the three parties involved in the wealth management process - the adviser, the fund manager and the wrap provider. All charges should be completely transparent and any payments from third parties should be disclosed in full to the adviser and client. Any income received - whether fee rebates from fund managers, dividends or interest on deposits - should be credited in full to the individual client's account.
So, it's up to the provider of the fundmarket or wrap what sector of their target market they wish to appeal to. If essentially they wish to act as a central hub of product distribution, then agreeing deals with the product providers to provide administration to them is probably the right way to go. On the other hand, a true wrap provider is interested only in providing first-class electronic administration services in exchange for an agreed, transparent fee.
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