View more on these topics

Mass appeal

Wrap firms are in a crowded market but none yet seems to realise the huge potential of the mass affluent sector

Being a platform provider used to make you stand out from the herd. Transparency, open architecture and a rejection of the old insured product landscape gave you access to a fairly exclusive club but what happens when the club has too many members?

I have been considering this over the last couple of weeks since Zurich announced its FNZ wrap implementation will hit the market late this year. With Aegon’s forth-coming launch, that makes well over 25 platforms serving the IFA market.

Unfortunately, the classic wrap market probably does not have much more room. Most propositions there share underpinnings and innovation too often is in added value tools and sparkly shiny things that many advisers neither want or need.

The trick for new entrants will be to stand out. That is not going to be easy. The challenge for Zurich, Aegon and other new entrants as well as challengers is how to mark themselves out.

There will be a temptation to do this on price but the price leaders are already at 0.25 per cent. There is not much room left. A 0.05 per cent difference is probably not enough to disrupt existing relationships and it will make it harder for that provider to make ends meet.

There is clear blue water though in an underserved area in the platform market the mass affluent. We are talking here about clients who have a few Isas and perhaps £40,000 or £50,000 all in.

This part of the market works in counterintuitively. Normally, you would expect smaller clients to be less price-sensitive and perhaps they are in themselves. But, for advisers, it is vital to suppress the total cost of investing as far as possible to leave more space for their ad valorem charging.

Most IFAs I know do not want to cut their mid-market clients adrift. Apart from the fact that it just feels wrong, these clients are often the affluent of tomorrow. Leaving them to the clutches of the banks does not feel like a good solution, so the challenge is to find a proposition that works.

Advisers could use off-platform products for this group. A standard insured personal pension is available now for somewhere between 0.4 per cent and 0.5 per cent on a factory-gate basis. Next to this, a wrap or supermarket charging a composite rate of, say, 0.4 per cent or more just for the use of the platform feels uncompetitive.
The problem with off-platform products, though, is they are less efficient to manage than wraps. They tend not to have model portfolio functionality, bulk switching or rebalancing and the funds backing them are often murky.

Advisers wanting to serve this market simply cannot work on a per-client basis. They need to segment them and manage them as a group. In short, they need the incredible technology that platforms offer.

There is a genuine area for a wrap provider to get in underneath the existing market. We are talking about huge numbers of clients, all with relatively modest pots. Capital gains tax calculators, double-geared Guatemalan venture capital funds and offshore bonds are not much use for this lot. Advisers serving this market need the basics done right at a low cost, first time, every time.

And the price point? If someone can come up with a coherent proposition that mixes a cost very close to off-platform rates around 0.5 per cent that covers the platform and a decent range of passive and active insured funds, there could be a lot of business to pick up.

In the race to win the crowded high-net-worth sector, platforms are trying to out-manufacture each other. Funnily enough, wrap technology can benefit the less affluent and the advisers serving them just as much. For providers looking to differentiate themselves, this could be just the thing.

Mark Polson is principal of The Lang Cat

Recommended

Driving force

Poor service and lack of client contact are often the reasons why businesses lose clients but creating a consistent review service will build value and ensure your clients’ financial engine is running smoothly

Paragon to launch £150m securitisation

The Paragon Group of Companies, the parent company of Paragon Mortgages, is to launch a £150m securitisation. The firm has instructed Lloyds Bank Corporate Markets, Macquarie Bank, London Branch and Morgan Stanley as lead managers to launch the transaction. The final terms of the securitisation are yet to be decided but Paragon estimates the size […]

Aviva UK life and pensions sales up 6%

Aviva’s UK life and pensions sales increased 6 per cent from £7.6bn in the first nine months last year to £8bn at September 30, 2011. The increase was driven by strong sales growth in group pensions and individual annuities. Group pensions new business rose 68 per cent in the first nine months of 2011 compared […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com