Opinion  

Are we really witnessing a flight to wraps?

Michael Trudeau

An interesting little news story today made me look back at the news we’ve seen since the beginning of the year about the performance of wraps as opposed to that of fund supermarkets.

Standard Life announced that it is reviewing its fund supermarket proposition. While this alone would not be particularly riveting news, the reason they are doing this is that advisers are demanding Standard Life’s fund supermarkets function more like wrap platforms.

This comes shortly after Standard Life revealed a 20 per cent rise in adviser numbers on its wrap.

Ever seen When Harry Met Sally? Remember the “I’ll have what she’s having” scene? Kind of like that.

Certain vested interests would have you take the adviser exodus from the Egypt of fund supermarkets to the Promised Land of wrap platforms as granted. However, let’s look at how exactly the facts stack up.

The game kicked off in January - shortly after the introduction of the Retail Distribution Review - with a study from Altus showing that total revenue of the top 20 or so platforms was less than their aggregate expenses. Now, this is possibly a misleading number because it suggests all platforms are doing badly whereas a single large player in dire financial straits could badly warp the figures.

Still, it doesn’t look healthy from a sector point of view.

Even then, AJ Bell’s Mike Morrison pointed out that the platform stage has a great variety of players. He particularly pointed out that companies like Nucleus or Ascentric - both wraps - had “evolved on a platform basis and not from a company”.

Shortly after that, Ascentric posted a whopping 27 per cent growth of assets under management in a single quarter, representing one of the strongest periods in company history.

Another report later in the year found that none of the top 10 platforms (I’ll let you guess) scored more than 61 per cent in a systematic rating of functionality. The “best” performer?

Transact. A wrap.

Skip ahead a couple of months to June 2013. The Platforum published findings that the “big five” platforms now hold 70 per cent of market share where they previously held 90 per cent.

Did this phase them? Skandia, which had previously reported falling inflows, kept a cool head, saying big platforms have little to fear from this shift and poo-pooing the notion that market trends could be gleaned from mere quarterly figures.

That’s all well and good, but the next month Nucleus boasted a half-million-pound swing into profit for the first half of the year, compared to breaking even the year before.

A couple of weeks later the wrap announced dropping its pricing thresholds across the board.

Ascentric’s Hugo Thormann, admittedly one of the vested interests I mention above, soon thereafter estimated that three-quarters of new business was going to wraps, and that this figure was set to rise.

Succession also recently announced it is to partner with Aegon to launch a wrap platform of its own. The market must be doing alright if we are seeing new entrants, surely.