OpinionMay 7 2013

Advisers need to think carefully before selecting wraps

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It may not be branded as such but, to all intents and purposes, the past couple of weeks have delivered the final details of the RDR in the form of the platform paper.

Platforms are already jostling and positioning, reassuring investors and advisers that they are prepared to deliver on the changes while arguing over some of the paper’s finer points.

The arguments are well rehearsed and some platforms at least are even framing the changes in the context of delivering value for consumers, which is certainly something to welcome. However, how should investment advisers approach the new world?

I’m going to be slightly bold and suggest that almost all of the big players have already done the mathematics on this, and are in it for the long term.

It may be worthwhile returning to the research you did when selecting a wrap and running a stress test in light of the platform paper. In a recent conversation with consultant Roderic Rennison, whose business, The Ideas Lab, helps advisers with business transition, he said many advisers were still not doing enough to consider the resilience of their business partners.

When it comes to assessing platforms, it might be useful to consider how things have looked from the other side of the fence. Imagine the sorts of conversations that providers, fund managers and platforms have had about the fate of their distribution as the RDR was implemented.

What none of these businesses have displayed is any sort of sentiment about advisers and their fate. All of these businesses have crunched the numbers ruthlessly and quite a few are displaying very strong direct ambitions as a result.

That is of course exactly what one would expect. If you now accept that this is effectively the RDR for platforms, then investment advisers need to follow the same dispassionate approach.

The moves to ban all fund manager to platform payments apart from – oddly – payments for advertising on platforms, are revolutionary although obviously some platforms have further to travel than others. The strain on capital will be significant. You may want to consider what sort of backing a business has.

But even with larger players or smaller players with larger parents, you may have to consider other near imponderables such as whether the main board will continue to support more capital outlay.