Cherry Reynard talks to Ian Taylor, Transact's managing director, about his company's success in the wrap field and his belief that pricing structures should be more transparent so an adviser is paid by their client not their supplier
ANY ADVISER WHO believes wrap is simply a tool for making their existing business better is going to be disappointed.
That is the word from Transact's managing director Ian Taylor, who says that advisers need to be prepared to change their business model to reap the true rewards of using wrap.
But Taylor says that for those willing to redesign their businesses, the benefits are substantial, both financially and administratively.
Transact has one of the best pedigrees in the wrap market.
It has been around the longest, though in wrap terms that is not all that long - business started in March 2000.
Its service has been built with Australian backer ObjectMastery.
Australia is among the most sophisticated markets for wrap, so the technology had all been tried and tested.
As Taylor says: "It was just a case of teaching it to speak English".
The Transact model conforms to the traditional understanding of wrap, providing aggregation of investments and tax wrappers.
Taylor says that wrap is now coming into the mainstream.
This has been prompted by three things: Firstly, the increasing numbers of financial advisers using wrap - it no longer requires the leap of faith it did previously.
Secondly, the amount of trusted brand names now launching into this market; and thirdly, there is a lot more being written about wrap in the press.
It no longer seems like a complex solution.
Advisers are being forced to think about it for the sake of their businesses.
Taylor believes the transition process can take up to three months and then getting used to the system can take another three months.
When an adviser sets up an account, their client's money is allocated to Transact and it goes into a general investment account (GIA).
Transact then buy assets on behalf of the investor - see the box out for the list of available assets.
The system can also deal with legacy business without generating a chargeable event through a system of re-registration.
Once the asset mix has been determined, the portfolio is then slotted into various tax wrappers - including pensions, Isas, Peps, Section 32 and offshore bonds.
The system does not include a full aggregation service, incorporating bank accounts, mortgages etc, but it does have a notepad section (called 'asset memo') where users can key in the value of additional assets to ensure that they get a full picture of their net worth.
You get what you pay for The charging structure (shown in the table left) has important implications.
Taylor says: "Our model suggests that three people need to be paid - the financial adviser, us and the fund management company. We charge a client when a product needs to be bought, switched or held. A client puts money into a Transact account and decides - in conjunction with their adviser - which assets they would like to buy." Taylor adds: "At the moment an adviser will say that Mrs Jones should have a pension. For that advice, Mrs Jones does not pay him; he gets paid by the life office. I cannot find another business that operates like this. It should be so much easier to say - where is your money? When do you want to retire? What are your goals? Planners think about the bigger picture. Then they can worry about whether an investor should be choosing Gartmore or Fidelity." This requires a change to the adviser's business.
Taylor believes an adviser has to take three things on board - to become an adviser not a salesman; to be paid by clients not by suppliers and to think about plans and not products.
Taylor says that those advisers who demand that wrap should allow them to do the same as they have always done, only quickly or more efficiently, miss the point.
Taylor says: "Our model means we are completely agnostic on the asset and on the wrapper. We charge out of the client's cash. No-one else pays us anything.It is very clean and transparent." Financial advisers then decide what they want in terms of commission to buy, switch and hold.
They take their share out of the client account.
This is easily adapted to a fee basis as well.
Taylor says this is how Sandler expected the model to work "it has a built-in avoidance of product bias".
This charging model also differentiates Transact from the fund supermarkets.
Many of the fund supermarkets have now launched pension and other tax wrappers and are starting to look increasingly like wrap providers.
But they still rely on trail commission to sustain them.
Transact rebates the 0.75% of the 1.5% it receives from the fund management group to the client.
Fund supermarkets are still being paid by the fund management groups.
Taylor says: "We do not take any money from the asset managers. Fund supermarkets also cannot hold equities or other listed investments. This is very important for investment trusts. We have a good relationship with the AITC. We feel we have helped level the playing field for investment trusts. For many advisers with high net worth clients, one type of collective investment is simply not enough." Information at your fingertips Controversially, the Transact system also lets clients view their own portfolios and make transactions.
Taylor says that they can switch off this functionality, but by keeping it, advisers can see if their clients are making transactions.
He points out that under the old model clients could always apply for a unit trust independently and the adviser would not know anything about it.
It can only handle with-profits in the 'asset memo' section.
Taylor says that advisers use Transact in different ways.
Some have migrated all their clients onto the system and built their business rou nd the platform; others have tiered their client base and moved all those above a certain level to Transact, using the fund supermarkets for the remaining clients.
He adds: "Neither way is more valid, but I think those who use the service for practice management derive the most benefit. Imagine your most important client says 'I am in town unexpectedly and I am coming to see you in 45 minutes.' In the old school of financial planning, advisers would need to phone round the life offices to get a portfolio valuation. Now they can just click on a button." There are no major developments planned for the service.
The group are adding an onshore bond to their range of tax planning wrappers, but Taylor describes this as "just work" rather than a major change.
Taylor adds: "With all these changes - for example, A-day - we just need someone to give us the rules and we can change the system. We have had 1,400 system developments, but 1,200 of those probably will not have been noticed by clients." Functionality Taylor concludes: "We have spent very little on advertising. Most of our business comes through word of mouth." Transact now has £1.
5bn on the platform across 1,500 financial advisers.
The group has tried to eliminate much of the irritation factor.
He adds: "We look at what used to drive us round the bend. Top of that were calls centres where the phone was eventually answered by a person who could not answer your question. We will never have one of those systems where you press 1 for x, press 2 for y, and we make sure that much of the functionality is put into the hands of those people answering the phones. The person in front of the screen will know all about the caller's account." There is a compelling logic to the Transact offering.
It has a refreshing transparency in an industry that has often had a smoke-and-mirrors approach to product provision.
Taylor says the group itself has no capacity constraints.
But future growth will be constrained by the reluctance of many advisers to alter their business model.
The Australian market supports nearly 100 wrap providers.
This is an area advisers can no longer afford to ignore.
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