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Share-brained schemes

March is one of the busiest times of the year in our industry with the end of the financial year approaching.

In my organisation, it is the time of year that we conduct one of the biggest e-Excellence studies and certainly one of the most significant – our analysis on wrap and wealth management services.

Since December, our research team has been engaged in a series of workshops, one-to-one meetings and online conference calls with leading adviser firms to identify the issues that are most significant to them when it comes to selecting business partners for wrap, fund supermarket and wealth management solutions.

Of all the different e-Excellence studies, we conduct during the year, this is one of the studies that attracts the greatest engagement from adviser firms. The firms that directly engage in the research process get a detailed extract of the findings, enabling them to use this to compare wrap providers.

From feedback in previous years, we know that the detailed output has a significant influence on which wrap providers are selected as partners as it enables the adviser to compare the features of different wraps feature by feature.

One thing I can also be sure of in addition to significant adviser interest in this study is the reaction I get from a small handful of wrap providers which, when asked to respond to the research, tell me that e-commerce is irrelevant when it comes to choosing a wrap provider.

For example, one company emailed me recently telling me they would not be responding as: “It is fruitless to compare businesses that have different objectives simply because ‘they use the internet’ for example.”

It never ceases to amuse me that a small number of wrap providers insist on taking an approach similar to King Canute’s courtiers in believing they can hold back the tide of technology advance if they deny its impact long enough.

Back in the real world, our discussions with advisers make it clear that when it comes to developing long terms strategic alliances the quality of the e-commerce proposition is an essential component.

In the light of the rather myopic comment from the provider mentioned above, it is perhaps appropriate to define e-commerce. Contrary to the convenient position, it is not a matter of “using the internet”. The definition we apply to e-commerce is all ways in which businesses interact with the exception of on paper.

It does not worry me that a small number of wrap providers have such little confidence in their propositions that they are desperate not to put themselves up for objective comparison.

I am clear that those providers who understand the adviser market recognise that running an IFA business in the 21st Century is about operating profitably. If you are dealing with a wrap provider which lacks the technology to enable the adviser to fully automate their processes and client servicing, ultimately the adviser will have to pass that cost on to the client in higher fees.

To see this in action, you only have to look at the James Hay wrap. The original Abbey wrap proposition had little, if anything, to commend it unless for some reason you wanted to place all your business via Abbey there was really no reason to use it.

For the most part, it was bereft of the value-added tools and services that are needed to deliver true value to advisers and their clients.

Over the last year, the company has worked hard to deliver valuable additional services to advisers and although these are not all live yet, it is clear that in the future James Hay will be a serious leading-edge player which, backed by the scale and buying power of Allfunds Bank and Santander, has the potential to be a real market-leader.

A good e-commerce proposition cannot make a poor wrap proposition a good one but a good wrap proposition without fully functional e-commerce is just another unnecessarily expensive way of doing business.

Perhaps recognising their own limitations, a number of new entrants to the wrap market, especially some that are not aligned to specific product providers, are offering advisers shareholdings or at least share options in their business. Some are going as far as to link the level of shares or options to the amount of business introduced.

Perhaps I have lost the plot but this sounds to me remarkably similar to some of the worst excesses of the pre-regulated investment market of 20 years ago, with volume-related commission and a whole host of undisclosed or soft commission.

Like many people, I believe wrap provides our industry with an excellent opportunity to reinvent the business model for independent advice and deliver services aligned to client needs without the need for up-front commission that has an adverse impact on the performance of the investment.

What I cannot understand is how an adviser firm can hold itself out as independent and then say, in consideration of moving a client’s assets to a particular platform, they will accept share options in the company through which which they are placing the investment.

I accept that “share option for use” arrangements have been in place before, with the shares offered to advisers who signed up to Assureweb some years ago being one example.

Although ultim-ately, the Assureweb options did not generate any income for the advisers, there must be a world of difference between being given share options for using a quotation service and getting shares in proportion to the level of assets that an adviser recommends to be invested via a platform.

It is not difficult to see how poorly this might play in some of the media.

Does it really make sense to put at risk the reputation of the independent advice sector by a small number of firms accepting shares based on the value of the investments they place with a handful of wrap providers?


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