The traditional competition from asset managers and more recently fund supermarkets is being compounded by the growth of wrap accounts.The fall of the life offices may perhaps be overstating it but the risk of wrap accounts eating into insurers’ market share is resulting in them having at least to adapt aspects of their business. Prudential UK chief executive Mark Wood claimed last week that wrap accounts pose a major threat to the dominance of traditional life wrappers and life offices will have to adapt their businesses in order to remain a relevant feature of the savings and investment landscape. He said: “There are major challenges to life wrappers as the mechanism that the majority use to save and it is possible that wrap accounts become the structure that replaces traditional life wrappers.” There is little doubt that the life industry has changed enormously over the past few years in the drive to cut costs and try to diversify their businesses away from declining with-profits sales. But Selestia marketing director Bill Vasilieff believes the advantages that life offices have had are rapidly being whittled away. He says with-profits and endowment sales are effectively dead, as are endowment sales and the growth of Sipps is now even loosening insurer’s tight grip on the pensions market. He says: “Their main product lines are dead so what are they left with? Protection, which is where they started and has nothing like the margins of investment business. Unless they follow suit they are dead”. As a concept, wrap has seemingly moved from a pipedream hangover of the dot.com boom to a stark reality. Transact managing director Ian Taylor believes Wood should have been saying this several years ago as it has been his message for the past five years. He says it is staggering that giant firms such as Pru are now worried about companies the size of Transact- a notion few would have entertained a few years ago. Taylor says: “The only people who should feel threatened by wrap are life offices – advisers, clients, fund managers and, of course, wrap providers all benefit from it. Life offices are effectively selling expensive admin, products and a bit of fund manage-ment and we can do all of that cheaper. “If I were Pru chief executive, I would be in my office working on this. The problem for them is you are either a wrap provider or a life office – wrap is not just another product to put on the shelf.” Several life offices have tried and, in some cases, succeeded in getting out wrap offerings but Vasilieff points out their track records have been mixed at best. Pru’s attempt to enter the wrap market through Fundsdirect proved costly and abortive and it was subsequently sold on, leaving the insurer still lacking a compelling offering in this field. Other insurers, such as Standard Life and Clerical Medical, are in the process of building wraps and Legal & General has its relationship with Cofunds while others are more tight-lipped, such as Scottish Widows. Widows distribution development director Richard Anderson will only concede: “Scottish Widows is continuing to review the landscape of the emerging wrap market as part of our overall e-commerce strategy.” Norwich Union is arguably the only life office with a full proposition out there -its Lifetime wrap offering. NU head of wrap development Paul Stoakes says Wood’s comments reflect the industry as a static beast rather than the endlessly changing environment it really is. He says: “Yes, wraps are likely to change the industry but a lot of things have done in the past – it is not all doom and gloom. It is a different way for advisers to run their businesses, not a new product. “Anything that reduces IFAs’ admin costs and appeals to them to offer a more transparent service focusing on true financial advice, making advisers more effective has got to be welcomed. Strong life offices willing to adapt will benefit.” Taylor believes it will be difficult for life offices with huge books of legacy business to launch a wrap that will not cannibalise their own back books. “Life offices really need to decide what they want to be in the future,” he adds. Vasilieff is even more scathing, saying life offices have become too used to an easy life on fat margins to adapt nimbly and their track record in wraps is testimony to that. Equal Partners director Vivienne Starkey agrees life offices are facing increasingly stiff competition from independent providers and questions why advisers would ever need to use an insurer in the future. “Why use a life office wrapper when others can provide the same wrapper and with a wider fund choice,” she says. In fairness, she notes that wraps can still be more expensive than buying the wrappers individually and it will be some time before they can hope to gain any dominance in the market. That said, when the chief executive of the Pru’s second largest insurer says they are a threat then the life offices are clearly feeling the heat already. There is no doubt they have the distribution, brand strength and life and pension administrative expertise to be strong players in the market. Now is the chance for life offices to prove they are not dinosaurs and can move swiftly and decisively. A failure to do so may see them marginalised to an extent that could change the financial landscape permanently.