There has been much talk of how wraps can benefit the adviser for some time now but the message doesn't seem to be getting through, Matthew Craig asks why
What do independent financial advisers (IFAs) in the UK really think about wraps? Do they see a wrap platform, which could potentially offer the benefits of access to investment funds and other products at lower costs together with simplified administration and reporting, as the way forward?
Or are they suspicious of an unproven technological solution, which could tie them into a highly dependent relationship with one or two providers?
The wraps debate has been going on for some time in the UK and two surveys carried out last year by CoreData Research UK show that adviser sentiment towards the wrap concept is actually degrading. This is due principally to their fears and uncertainties over what is on offer and how it will affect their businesses as well as a perceived lag between what has been promised and what is being delivered.
CoreData carried out extensive research among IFAs at the end of last year to track their views on wraps, using one-on-one interviews, focus group sessions and online polling. The results show that advisers feel wrap evangelists are over-promising and under-delivering and this is creating mis-trust in the market.
Figure one shows that the intended early adoption of wraps among advisers was running at 39% of the respondents in December 2006, which was down from 44% in June of the same year.
In addition, 25% of advisers said they would only adopt a wrap when forced to do so by the market, up from 21% on the same question six months earlier. One-third of advisers did not understand the benefits of wraps to either their business or their clients, slightly up from 30% of advisers in the previous survey.
The research also found that the number of advisers who marked themselves as "unsure" of taking up a wrap appeared to be moving out of one-man-band operations to the middle-sized advisers.
Of even more concern to wrap providers was the finding that over 70% of advisers surveyed stated that they doubted the long-term viability of wraps. Furthermore, only 46% of advisers had formally discussed wraps as something they could or should use in their business.
How UK advisers operate
In order to ascertain why advisers are developing cold feet over what could be the next major development in the provision of financial services, it is necessary to look more closely at how most UK advisers operate.
The research found that most advisers are omnivorous, that is to say they do not specialise in particular areas to any great extent and will take whatever business comes in the door.
The 'all things to all men' approach of many advisers was further illustrated when advisers were asked who their clients were. When asked who where the most frequent types of client seen, responses commonly indicated a mix (see figure two).
In this case mass affluent is described as individuals with more than £20,000 and up to £250,000 in liquid assets, especially the 41-60-year-old market, and high net worth (HNW) reflects individuals with more than £250,000 in liquid assets.
In terms of products and services offered, virtually all advisers offered a range of complete services to their clients, covering personal finance, protection, pensions and investment, through to mortgages, general insurance, equity release and estate planning.
In theory this approach means that clients can receive a holistic service, with the adviser able to look across all of their financial needs and take the appropriate actions.
The implications for wrap providers are that any wrap platform for UK advisers will have to include a wide range of businesses if it is to be all-encompassing. Given that in Australia, wraps are only now starting to cover all main areas after around 15 years of development, it is clearly asking a great deal for UK wraps to be launched covering the full range of adviser services.
Advisers generally rated their clients as being at least moderately satisfied with the service they provide, with an average of 7.8 out of 10 scored. This is important, as most advisers said client referrals were their main source of new business.
Advisers were also found to have serious concerns over compliance (costs and time taken), as well as over managing the paperwork and office procedures in running their businesses. Asked how much of a burden the current compliance regime placed on them, 46% said 'some burden', 32% said a 'considerable burden' and 15% put it as an unreasonable burden.
Unsurprisingly then, 67% of advisers said their main business need was a more efficient administration system, ahead of more effective marketing (55.6%). Their main business aspiration was to grow their business (40% of advisers), ahead of finding better clients (30%).
These results show a major discrepancy between adviser views of wraps and their business needs. A wrap platform, which streamlines and simplifies administration and compliance, should be a great help to advisers in running their businesses more efficiently, giving them more time to develop and grow it. In addition, use of a wrap can make advisers' businesses more attractive to buyers.
This is illustrated by the recent rash of sales in Australia - a market in which the distribution elements are quickly consolidating - of those businesses which have all of their assets on a single platform. These advisers are very attractive to buyers, as the clients and the assets are easy to transfer and the businesses are very easy to value.
To win over sceptical advisers, wrap providers need to spend more time showing how a wrap offering will help advisers with administration and compliance. There is a need for this. Research found that almost all advisers would be interested or very interested in a service which reduced their administration and compliance burden and that just over 50% would be prepared to pay for this.
While this result should be gratifying for wrap providers, they should also be aware of the fickle nature of UK advisers, as most stated that they would be happy to have more than one wrap relationship. 60% stated that they would be happy to churn their wrap relationships, i.e. to move on if a better offer materialises.
Getting the message
One of the critical elements that the survey reveals is that many IFAs are not getting the message about how a wrap service will help them run and operate their businesses. There was generally a high awareness that those elements would be delivered by a wrap - but a generally a low awareness that by adopting those elements the IFAs would be able to run more efficient and more profitable businesses.
In the Australian market, where wrap and platforms are more mature, much of the marketing effort is focused on the fact that by adopting a wrap, advisers will have more time to spend with clients. That message doesn't seem to be getting through to the UK advisers, which means that the benefits of the wraps are still poorly understood.
Joined as head of strategy, multi asset, in June
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