Getting underneath wraps

One of the abiding myths dominating wrap debate in the UK is that moving from a business environment in which there are no wrap platforms in operation into an environment where the industry is dominated by them will be simple, painless and swift.

The current comparison of the UK financial services industry with the Australian financial services industry - which is frequently painted as a kind of wrap-based utopia for financial advisers - is dangerous and, in many ways, deeply flawed.

In real terms it took more than two decades, a number of financial collapses, significant and painful legal reform, a series of mergers, and some slow and agonising deaths before the industry became a success - all stages which the UK industry is yet to go through and there may simply be no way to short cut this process.

In essence, wraps and platforms become successful and useful when they reach the type of critical density which allows them to run as successful businesses in their own right. This means that they must hold sufficient assets to meet the cost of servicing tens of thousands of clients and the systems that are required to run the wraps and platforms.

However, there are a number of companies within the UK that recognise the strategic importance of wraps and are prepared to go on the long and often difficult task of making them successful.

Let us be crystal clear here - wraps are not just a start-up proposition; they need to be designed to run flawlessly every day, literally and technically forever. As a result, they require constant and permanent investment in the technology, their customer service and their sales teams.

For an IFA this means the choice of wrap partner is critical because if you are going to morph your business model, you need to do it with a partner that is committed to and able to deliver a permanent and relatively painless change to your business.

The reality is the wrap providers are winning the battle in the UK, and a noted shift in adviser sentiment towards wraps in the UK since 2006 seems to be starting to deliver for wrap manufacturers.

In research carried out early this year, CoreData found that just over 70 per cent of IFAs could be classed as 'believers' when it came to wraps, with the remainder being 'sceptics'.

In 2006, just two years earlier, these figures were effectively reversed, when many IFAs felt wraps to be over-hyped. Then, research found that 39 per cent of advisers said they would be an early adopter of wraps. By 2008, this figure had jumped to 84 per cent.

The change in UK adviser attitudes seems to be driven by the awareness of what a wrap actually offers and wraps are seen as fitting in with a prevailing trend for IFAs to move towards trail commissions or fees as the main form of remuneration - the so-called 'new model adviser'.