A key facet of a wrap platform is the range and depth of investments it gives access to.
The argument goes that if you can access the vast majority of investments on the market via a wrap platform why would an adviser need to use more than one wrap?
It is fine in principle but what about the reality? Wrap platforms are not just about accessing whole of market investments, they are also about accessing them via tax wrappers such as ISAs, bonds and SIPPS.
So does the argument stack up in terms of advisers being able to offer whole of market advice with solutions provided via only one ISA, bond and SIPP tax wrapper on one wrap platform?
Perhaps the answer would be “Yes,” if ISAs, bonds and SIPPS were truly just tax wrappers.
In other words they could sit on a wrap platform in a benign state because say, one ISA tax wrapper would be the same as another and thus would not conflict with provision of whole of market advice.
Yes, the rules applying to one ISA are much the same as any other, for example they all have to abide by the maximum investment limit of £7,000 to qualify.
But even with such a relatively straightforward tax wrapper differences emerge. The market is split on how it deals with death. Some stocks and shares ISAs will immediately disinvest to cash on notification of death.
Others will stay in the market, for what may be months before probate is settled and proceeds paid to the deceased’s estate. Can this difference be ignored? ISAs may not be totally benign but are they benign enough?
Bonds are in a bit of a turmoil with the proposed CGT changes but again whilst bonds are fairly homogenous, points of differentiation do apply including in the area of trust arrangements, which may be their saving grace moving forward.
However, for SIPPS we have moved from a prescriptive regime of hard and fast tax limits e.g. contributions were restricted to a prescribed maximum amount, to a post A-Day one of tax allowances e.g. you can actually contribute as much as you like to a pension but tax relief will only be granted up to the tax allowance thresholds.
And the same principle applies to investments under a SIPP. SIPP operators can no longer state they will allow all investments permitted by HMRC because essentially HMRC allow any investment, it is just the tax treatment of the investment that you have to watch out for.
Now each and every SIPP operator and trustee will have to consider acceptance of an asset on the grounds of whether it can be administered and what degree of risk to the trustees it represents.
Furthermore, gone are the pre A-Day Revenue model rules which were widely used and whose adoption essentially granted tax approval to the pension scheme. Now each scheme has to design its own rules.
Questions therefore arise like, will the SIPP allow contributions in excess of the annual allowance to be made, or will unauthorised payments be permitted if requested or whether Alternatively Secured Pension at age 75 will be an option.
So it is very hard to see how such tax wrappers can be benign. This therefore leads to the realisation that a wrap platform infrastructure needs to be open and able to support multiple tax wrappers.
This will then allow the whole of market adviser to not only direct investment to the most appropriate generic tax wrapper but also to a specific one that best meets the clients needs in terms of service delivery, product and investment options and costs.
And quite importantly if to ceases to be suitable an alternative can be facilitated from within the wrap platform.
Graham Coxell is business and commercial director at Capital Financial Services
The views expressed in this article are those of its author and do not necessarily represent those of IFAonline or any other Incisive Media affiliated organisation.IFAonline
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