It was not so long ago that fund supermarkets, being the big thing in America, would be the next big thing in the UK and, although there are detractors, they have had considerable success already in the UK marketplace.
Wrap accounts are now the subject of first-mover advantage as companies rush to develop distribution channels. So will wrap accounts have a major impact on our indus-try and change the way that IFAs operate?
It does seem there is considerable confusion over what wrap accounts are but my premise is an account that is able to bundle together different products such as pensions, life insurance, funds and equities into the one package.
In this way, the supporters argue that its time has come, particularly with the regulatory changes in mind.
This will allow an adviser's relationship with the client to move from a commission-based transaction to a fee-based one based on assets under management.
IFAs are facing huge cost burdens and so the prospect of dramatically reducing back-office costs and being able to take a holistic approach to client management is attractive, as supported by cost savings seen already in Australia and America where the accounts have been successful.
Some IFAs will view with suspicion the merits of one company holding all their clients assets. What would happen if you wanted to change your wrap provider? Could the provider move the goalposts and hit the IFA with increased costs in due course? Some clients may not want their assets all under one roof. We cannot necessarily expect Australian models to work in the UK, given that the UK financial system is so much more complex, involving many different types of product.
It is going to be a major challenge for the IT boffins to develop the sort of wrap account that I think would really appeal to IFAs even though the likes of Transact are already successfully operating here.
Our desired wrap product would need to offer full transactional ability including equities and a reporting function that could handle all the issues involved including tax calculations. Consolidated clients reports including instant online pricing of investments, and bank accounts and other investment vehicles such as Isas are required. I find it hard to believe that we would be able to include, within our account, all the different types of life insurance and pension products as well as investment assets.
From a reporting viewpoint, can we expect Prudential for example, to pass information electronically to Norwich Union's wrap account?
We cannot even get valuations from life companies within the course of a working day (or month), let alone instantaneously. Can our wrap account include banking products, especially mortgages, for example, and also help IFAs to administer self-assessment tax returns?
If the ideal wrap account could be found, my concern would then be cost. There would be considerable IT expenditure and, in this era of low investment returns, would such costs perhaps outweigh the advantages and would all parties – the client, the adviser and the product provider – stand to benefit? There would also be concerns on double-charging where unit trusts are involved.
From an advisory viewpoint, I think we will watch developments with interest because wrap accounts may also be trap accounts if we rush into it without due diligence.
There are challenging IT issues to provide the sort of wrap account that really would be very useful for IFAs in reducing their back-office costs and helping them use investment analytical tools, adding real value for the client.
Potentially, we then have an attractive proposition, which could change the way that IFAs operate.
In short, I think they are going to be beneficial for advisers but as with any new development, many IFAs will want to stand back for a little while.
Mike Owen is joint managing director of Plan Invest