There are also regulatory issues connected with wrap. Should an IFA have all their business on one platform and what do advisers make of platforms which offer shared ownership?
Evolve Financial Planning chartered financial planner Jason Witcombe says unless an adviser’s clients have very similar financial circumstances, they should be using more than one wrap, unless pricing comes down to a level where there is little difference between the various players.
Witcombe says: “The relationship between wrap and adviser needs to be whiter than white. Wraps have to be looked at on a client-by-client basis. Each has its own charging structure and while cost is not everything, it is still a very important factor.
“Where a wrap has no minimum fee, it can sometimes favour smaller portfolios. Where the annual charge tiers quite steeply downward, it can favour bigger portfolios.”
Worldwide Financial Planning managing director Peter McGahan says: “It is a given for any sensible person that using one wrap could not have any compliance issues with the FSA if the initial research regarding the wrap is correct. It is probable that the insurance industry wants to keep that argument running in order to maintain the status quo under which they and commission-hungry bond salesmen thrive. Every firm should do its due diligence every year to ascertain the best wrap for customers.”
McGahan points out that advisers who benefit from shares in a wrap would obviously have to disclose that to their customers. He says: “I suspect there are many advisers who have shares in a wrap who have not analysed any other wrap since and under no circumstances should they be allowed to use the word independent. They should be completing a wrap analysis immediately and either changing to the most competitive wrap or making a clear disclosure to their customers that they have chosen a lesser wrap for whatever the reason they have done so. I suspect they will not.”
Cathedral Financial Management chartered financial planner Tim Ames says fund supermarkets, such as FundsNetwork or Cofunds, do not have any additional costs for the client so they are obviously attractive. He says: “I do not feel that you need to use more than one wrap or platform purely to satisfy the regulator that you are independent.”
One major downside is the lack of cash accounts on platforms, which would be particularly attractive in these turbulent markets.
Ames says: “A wrap does have a pure cash account but the additional costs involved in a wrap service need to be taken into account. Wraps are more appropriate for bigger portfolios, say, over £300,000, and where the client wants to have an active portfolio management service.”
Wraps are now pretty comprehensive as most provide access to direct investments, Peps and Isas but there are still areas such as protection and mortgages that are neglected, which begs the question, why use a wrap or platform when you still have to transact all your other business elsewhere?
McGahan believes that such business requires little or no advice and ongoing monitoring.
He says: “Transactions such as the purchase of an annuity or dealing with life cover are simply monitored through a back-office system, which is still required even if a wrap is being used. Most wraps will soon have a suite of trusts and hopefully the ability to take protected rights.”
Protection is a separate issue as far as Ames is concerned and is not be something that he would expect to see on a platform.
Another issue that has troubled wraps is moving clients between portals. The idea of a one-stop shop is all very well but what if it is difficult to leave or you are faced with charges due to encashing an investment with one provider and then reinvesting it with another?
McGahan says: “Under treating customers fairly, it is essential that an adviser places a customer with a wrap provider that allows re-registration. Anything else is a disaster. It is unacceptable that customers are forced to hold funds they no longer want, have to encash funds they want to keep or be forced into a capital gains tax position because they are unable to re-register away from a provider.”
The last thing that clients and advisers want is to transfer assets on to a wrap and then have to transfer them away due to the wrap not living up to expectations.
Witcombe says where a client has numerous products, the hard part is consolidating all this on to the wrap. However, if they want to move in the future, there will only be one pension, one Isa, and so on, rather than multiple plans with different managers.
“The admin associated with transferring should not therefore be particularly onerous. Where there could be an issue is out-of-market risk where the wrap platform will not allow clients to re-register their holdings on to a new platform. It pays to select a platform that has a pragmatic approach to this,” he says.
Financial Technology Research Centre managing director Ian McKenna believes the cost of wraps is going to be a highly competitive issue. He says: “There are obvious benefits for advisers and providers with consumers using wraps but the jury is still out when it comes to cost, as they bring another layer of charges which can have a significant impact on a client’s returns.”