At that time, we had already embraced Fidelity FundsNetwork and clients were starting to enjoy the benefits of having a consolidated portfolio within a relatively cost-neutral model. Transact’s argument was that clients would be prepared to pay a premium for a wrap service but my experience was that an extra 0.5 per cent a year was too much.
Enter Paul Bradshaw, David Ferguson and Philip Martin, who had been on the wrap path for some time. I quickly became convinced that the IFA community could establish its own wrap and that this could compete on cost with the FundsNetwork model.
The software running a wrap platform was becoming increasingly commoditised, providing an opportunity for a low-cost entrant to the market. This coupled with the Nucleus trio’s enthusiasm resulted in the first steps towards their wrap. What was exciting was that this would be controlled by IFAs and the platform would be tailored accordingly. Certain issues were fundamental to the founding IFA firms.
First, the platform must give complete transparency. Nucleus would not skim a margin from cash and 100 per cent of fund management rebates would be paid direct into a client’s account. Second, the overall charging structure must be competitive compared with the traditional marketplace.
Third, the platform must have access to all the main tax wrappers including a direct account, an Isa, an offshore/onshore bond and pension accounts. Each account would allow access to any investment permitted by the rules governing the tax wrapper, including direct equities, offshore funds, investment trusts and the mainstream retail funds.
Finally, the platform was majority owned by the IFA community, ensuring that control over future developments and pricing was maintained.
The traditional providers thought the idea was insanity. Many had already spent tens of millions of pounds and believed the costs would be prohibitive. However, when you take out the costs of market consultancy and building a platform from scratch that integrates into existing systems, you start to realise the possibilities.
Six years on, the Nucleus wrap is a reality and is revolutionising our client investment proposition. It provides access to asset classes not widely available to the retail investor and allows us to hold particular assets in the most appropriate tax wrapper while not impinging on our ability to efficiently manage a client portfolio.
It is my opinion that the Nucleus wrap allows us to align our business more closely to our clients and over the longer term this should improve our client relationships and create extra value in our business.
John Moore is director of Central Investment Services