The Financial Services Authority (FSA) has warned of the potential risk of using wrap platforms but ...
The Financial Services Authority (FSA) has warned of the potential risk of using wrap platforms but has ruled out any formal investigation into their use.
It said while wraps were not being used in an inappropriate way, there were some areas where their use could lead to consumer detriment.
It found wrap costs were difficult to understand with complex changing structures, including stepped charges dependent on portfolio size, transactional changes and differential charges between initial and ongoing fees.
It also believed wrap charges could obscure the cost of products acquired and held under the wrap, and that a wrap may be difficult to exit, particularly if a product or tax wrapper is specific to the wrap.
It noted that the potential barriers to exit a wrap should be made clear to the client.
Abi Jones, press officer at the FSA, said: "Advisers must make sure a wrap platform is suitable for their clients. Investors must be aware of all potential charges which could occur. Platforms should be transparent and disclose all fees to investors so they are not hit with unnecessary charges."
However, Jones stressed that there were a number of benefits to using a wrap, including the ability to view and obtain consolidated statements on a consumer's portfolio, the flexibility of low cost switching of funds and, in some instances, the opportunity to access investment products at discounted rates.
She added: "Wraps may allow advisers to reduce their own administrative costs and devote more time to adv-ising clients."
Commenting on the report, Nick Blake, national sales manager at Standard Life International, believed clients could benefit from independent advice and holistic portfolio management aided by a platform.
He said: "By using a wrap, advisers are able to deliver better quality, more timely information to their clients."
FSA has issued a report of wrap platforms
Advisers should choose platforms which offer complete transparency
The regulator noted benefits to wrap, such as consolidated statements
Wraps allow advisers to spend more time with clients
Service increasingly key
Aiming to be top three UK financial planner
Lowest measure since index launched in 1995
Complaints into double figures
Despite lower median annual earnings