As an industry, we are very good at confusing relatively simple concepts with unnecessary terminology.
In the platform market, perhaps the most prominent example of this is the continued use of the labels ‘wrap’ and ‘fund supermarket’.
This is partly a result of how the market has evolved, but another part is a deliberate attempt to create a differentiator for certain businesses that no longer exists.
The platform market is relatively new compared with financial services as a whole, and previously there was no regulation that applied specifically to platforms. They were covered by the same rules as all other product providers.
However, that has now changed and the regulatory distinction between different types of platform has been removed. So we now have one set of rules and guidance that applies to all platform service providers.
In the past, as the platform sector evolved, there was a difference between a fund supermarket and a wrap.
Generally fund supermarkets have been around longer and evolved from a market where multiple external fund links started to add investment flexibility and value to advisers. They offered access to a wide range of funds and the charge for the platform and advice was bundled into the total expense ratio.
Wraps on the other hand introduced a different approach where they offered a wider investment range, and the charge for the platform and advice was shown explicitly via an unbundled charging structure.
They introduced cash accounts into which cash rebates were paid to fund platform charges and commission – a differentiator which is lost with the cash rebate ban in April 2014.
The drive towards transparency driven by customer demand and hastened by the RDR led the traditional fund supermarkets to launch unbundled charging structures that split out the platform charge, fund cost and advice fee, just like the wraps.
Some argue that a differentiator is that wraps are paid for by the customer, whereas fund supermarkets are paid for by fund groups through rebates. Clearly this is no longer the case, with all platforms having a clear and discrete customer charge.
So, we are now in a position where there is no difference between wraps and fund supermarkets from a regulatory perspective, and the fundamental principles surrounding how they charge for their services are the same.
Some platforms will offer a wider investment range, some will offer more comprehensive portfolio planning tools or better technical support.
It is up to advisers to decide which is most suitable to serve their clients, but one thing is clear: there is no longer a difference between a wrap or fund supermarket worth considering.
Banks all offer slightly different charges and ranges of products but they are still banks. The same applies to platforms. They all provide access to different investment solutions, with different tools and functionality to help advisers manage their clients’ wealth. To attach additional labels only serves to confuse the customer.