Wrap providers should only sell to IFAs who understand disclosure requirements, according to support services provider threesixty.
The group's plea follows the recent FSA discussion paper on wraps and the upcoming MiFID implementation.
From November, product providers and platforms would no longer be required to issue clients with post-sale product information, with the responsibility falling to IFAs.
Proposals in the discussion paper on wraps require IFAs to disclose charging structures and remuneration methods, including share ownership schemes, to clients in a clear and understandable manner.
However, threesixty says platform providers still have a key role to play and should scrutinise IFAs to check they are meeting disclosure requirements. They should then provide guidance and assistance where necessary.
Phil Young, threesixty services partner, says the wrap disclosure requirement is complicated and potentially difficult for IFAs with limited access to good quality compliance guidance.
“Wraps should only be made available to those firms that can demonstrate a sound knowledge of the disclosure requirements and have systems and controls robust enough to manage wrap assets,” he says.
“This need not be unduly burdensome and should not have any cost implications for smaller firms, but some form of screening should be encouraged to protect the reputation of the industry.”
Advisers can follow this link to obtain threesixty’s ‘View on Wrap’ document.
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"Once again I notice another headline grabbing story from the IFA support service group Threesixty, this time calling for 'uninformed IFAs not to be sold wraps' and for wrap providers to vet IFAs for compliance and competence.
"The 'partner' Phil Young is quoted a saying: 'Wraps should only be made available to those firms that can demonstrate a sound knowledge of the disclosure requirements and have systems and controls robust enough to manage wrap assets'.
"This would undoubtedly have the effect of adding a further layer of complication to this class of business, a layer which compliance support companies such as threesixty would be only too delighted to assist with, at a price of course.
"This particular organisation seem to have views on almost every aspect of the industry and seem very keen to express them, perhaps the true agenda is simply to raise the companies market profile within the industry.
"On this occasion they seem to have used the opportunity to call for additional compliance, which I guess in turn, they will then help us all resolve.
"Having looked at the Threesixty LLP website, the senior individuals within the organisation are still referred to as 'partners', when as an LLP, I understand should legally be referred to as 'members'.
"Perhaps a little more time dedicated to their own compliance as opposed to attempting to increase everyone else's would not go amiss."
Alan Parkinson, principal, CPD Independent Financial Advisers.
"For the last 15 years as part of our services proposition, I have been offered advisory portfolio management service that includes most of the services offered by wrap fund with one exception, it is time consuming and labour intensive for advisor and client because it's paper based.
"I agree with threesixty's comments. To me, a wrap should be a time saving mechanism to carry out transactions electronically for both adviser and client. What scares me is that in order to obtain market share, many of the wrap providers are including tools that are in essence placing the adviser in the position of a fund manager. This is dangerous territory, because I see one of the roles as an adviser is to be a mentor and to help and control client’s irrational behaviour especially when it comes to investing.
"I have recently read some interesting research from America carried out by a company called DALBAR. They carry the same survey year after year. What they do is measure investment performance of the average mutual fund, against the average 'investor' performance. This is done by collating the cash inflows and outflow of all mutual funds. According to the current results (2005), if the average mutual fund had been fully invested over 20 years it would have given the client an investment return of 11.5% whereas the average investor performance was 3.7% over the same period. The question has to be asked where did the average client investor go wrong? How did he not capture an additional 7.8%.
"There could be many answers, but one of them may have been was it the adviser's fault because he was using investment tools he did not fully understand. I'm sure that would be the conclusion in a court of law. I feel threesixty has responded responsibly to point out that the wrap fund, like the high performance sports car, can cause disaster if not treated with respect."
Jim Clancy, Clancy’s Financial PlanningIFAonline
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