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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'.

Added to this has been the fact that the range and quality of wraps on offer in the UK has also increased. Major life and pension companies such as Standard Life and Axa have entered the UK wrap market, while existing players such as Transact have continued to pick up business.

Nascent operations like Ascentric and Nucleus have shown there are alternatives to a product provider wrap, while fund supermarkets such as Cofunds and Fidelity FundsNetwork have added functionality to upgrade their offerings, blurring the lines between a fund supermarket and a wrap.

As a result, more IFAs now perceive wraps as being very beneficial in terms of administration, reporting, client management, offering an online system and offering more competitive fees and charges.

Among the wrap sceptics, the potential benefits of a wrap are less widely appreciated and the overall view of wraps is less positive. These advisers require more convincing and, perhaps, a platform more closely aligned to their needs.

However, the potential growth for wraps is clearly substantial. Just over three-quarters of advisers think that a wrap is necessary, even if the adviser already uses a fund supermarket or other investment platform.

Despite this the amount of adviser business being put onto wraps is still low in the UK. Sixty-five per cent of advisers are putting less than 25 per cent of their firm's total business onto a wrap and the proportion of advisers putting over 75 per cent of their firm's business onto a wrap is less than 10 per cent.

These figures show that much still needs to be done to convert advisers to using wraps and to get assets onto their wrap platforms.

These figures tend to indicate that the vast bulk of UK IFAs are still wrap hobbyists - using them as an adjunct to, rather than the core of their business.

This behaviour will be a significant problem for the UK wrap industry because each installation of a wrap requires a full sales and training process as well as the need to manage and service it. But without fund critical mass, the wraps will never reach their profit potential, which in turn means they will not get the investment they need to offer the full suite of services that make them so valuable to both advisers and fund managers in Australia.

This was an observed trend in Australia in the middle 1990s of a number of platforms which were getting substantial fund growth, but were unable to get their profit growth into the realm that gave long-term business viability. In the end, these platforms were simply absorbed into larger, more robust platforms.

Purchase driven behaviour

There are three core groups of IFA display-distinctive wrap purchase behaviour. It is important for both the IFA and wrap provider to work out which group they fall into, in order to learn who they are providing to and what they get from the relationship. The groups are:

The Independents - these are strongly driven by a need to feel independent and that they are their own boss. They are passionate about their client relationships and tend to have fewer clients than the other segments, yet meet with a greater proportion of clients face-to-face and more frequently.

The downside of over-service is this segment often take calls out of hours from clients and find it difficult to relax on weekends. This segment also tends to struggle in taking the next big leap with their business.

Brand Conscious - these are strongly driven by brand and remuneration. They tend to be less loyal than the other segments and have a tendency to feel unloved as advisers by their providers compared with their counterparts in the industry. This group on average has a larger proportion of clients, however one-third tend to be more transactional clients.

Support Seekers - these are strongly driven by a need for pro-active support from their dealer, along with a broader cultural need of being involved with the dealer and other advisers in a given network. Being an adviser is more than money to this segment but part of a state of mind.

What is interesting about this for the industry is that the independents are often the first to adopt a wrap. They typically choose the smaller wraps, which have the ability to market themselves as 'pure' and add to the adviser's halo of independence. But this group tends to represent less than 25 per cent of the industry in number and about 10 per cent of the industry in assets under management and are, because of their tendency to be smaller and less well-resourced, difficult to manage.

In contrast to the independents, the support seekers and the brand-conscious tend to go with the larger brands and follow companies that they find it easy to do business with and get support from. As a consequence, these groups are often a more attractive area for wraps and platforms to target, as they tend to require less effort to manage and they will adopt the systems which make them good partners.

The UK wrap market is at an early stage of development and we can expect to see many twists and turns in the future if the Australian experience is anything to go by. For wrap manufacturers, embedding wraps at the heart of the advisers' businesses and making them viable will be a constant challenge. But as the alternative is to give way to the competition, we can expect to see advisers and wrap providers continuing to work on making wraps a long-term success in the UK.

Andrew Inwood is a founder and principal of CoreData Research UK