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Wrap migration

Enterprise Learning’s chief executive Gary Storer and principal consultant Andy Thompsett set out a five-step guide to making the move to wrap.

Since 2005, we have heard that wrap is the next big thing for delivering financial services to private clients. But predictions that up to 70 per cent of investment business would be flowing through wrap within two years have proven to be very optimistic and the current view is that wrap implementation will be evolution not revolution.

Most big insurers recognise that their traditional distribution model will need to change and are racing to develop their own wrap So far, the major insurers which have moved into wrap are Old Mutual, Standard Life, Legal & General and Norwich Union, with Friends Provident planning to launch this year.

Insurers face competition from established independent players, such as Transact, one of the few long established independent wrap providers. All are battling to compete with the fund supermarkets which hold the most significant proportion of investors’ assets.

From a regulatory perspective, last year, the FSA clarified its recognition that advisers should be allowed to select one wrap for the majority of a client’s assets, assuming the advice is justified. However, the need to prove whole of market suitability for those investments still remains.

Advisers and providers need to ask two key questions in demonstrating the suitability of a wrap-based sale. Why wrap? And why this wrap?

Consumers may not be clear about this and the benefits of moving to a wrap should be set out to avoid any confusion later.

The need for all privateclient advisers to consider a wrap offering is undeniable now and will increase. Competition from advisers who do offer it, the impact of reducing commission, increasing regulation, the growing range of investment options available and more educated and demanding consumers, all mean that advisers should focus on maximising the profitable use of their time.

What is the drag on takeup by advisers? There seem to be three main factors. First, scepticism. This may be caused by lack of knowledge or by poor experience of some of the initial wrap offerings, combined with concern about the regulatory position and a natural caution by successful private-client advisers who are reluctant to threaten their client relationships.

Second, start-up difficulties. Transferring clients to wrap requires client information and structured client records as well as a detailed analysis of which clients will benefit from transferring.

Third, an unclear business plan. Many advisers still rely on the traditional transactional model of selling single solutions to meet specific needs and generating a continuous flow of new clients. For this type of business, with little clarity about how to generate long-term value or deeper client relationships, wrap will seem like an unnecessary distraction.

For advisers convinced of the benefits, moving to a wrap is straightforward but not easy. We have devised a five-step process to help migrate advisers to wrap.

Analyse your business flow and review your goals

Work out where you are, where you want to be as a business, and create a plan to get there.

Advisers who are wedded to transactional sales on a high-indemnity basis are unlikely to make the move to wrap and is likely to limit any embedded business value.

Advisers wanting to work on a relationship basis with their clients will find the move to fees via wrap more attractive, with the added benefits of the prospect of embedded capital value and a viable exit strategy for their business.

Evaluate the importance of wrap as part of your solution

What are your drivers for moving to wrap? Will wrap help you achieve your goals? Will it be suitable for your clients, if so, how many and which ones?

Depending on the client information you have, this can take some time but if you know how it is likely to help clients, the more you will commit to making it work.

For example, advisers with clients, who have reasonable-sized collectives or pension portfolios, £80,000-plus, will be able to generate value for themselves and their clients quickly.

Compare wrap providers and select one

Not as easy as it sounds and one where taking advice or liaising with your network will reap rewards.

Simple steps would be to decide your evaluation criteria, such as fund choice, available wrappers, charges and charging structure, service levels and so forth. Give each one a weighting from 1 to 10, then research the market and evaluate each provider against your weighted criteria.

Adopt your chosen wraps

Treat this as a project and create a detailed plan for the transition to wrap. Remember we are talking about changing your business model, at least in part, and for some migrating an entire business.

Legacy business is a challenge here. Some providers offer specialist teams to help with migrating assets to the platform. This can have a major impact on advisers’ ability to make the move smooth and painless for themselves and their clients.

Quickly move to business as usual

Use as much of the functionality of your wraps as you can.

After an extensive transition, your business practices should have changed substantially. You should be spending far less time on admin and more time advising your clients. Wrap makes it simple to provide them with valuation reports, performance information, as well as statements of their investments. You can spend your time reviewing their portfolio of investments and advising them.

Most advisers will find themselves moving to a wrap-based service over the coming years. Given the dominance of provider-owned wraps in the UK and the importance of their choices to their business, advisers and networks should maintain an independent mindset in choosing and migrating to wraps. This means thorough research, detailed planning and justified client migration.

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