Model « DT Imago Blog

Stan Kirk, an independent expert on wrap platforms, looks into his crystal ball and offers some insights based on experiences over the last 10 years.
The potential for growth and success of wrap platforms looks, on the face of it, very strong. My view is that wrap platform providers that want to attract New Model Adviser (NMA) firms need to offer the following:
 Unbundled and fully transparent charging
 Open access to Unit Trusts extending to UK shares, ETFs and Investment Trusts as a minimum
 A good range of tax wrappers including ISA, Pensions, General Accounts and ideally Insured Company Bonds
 Model portfolios to enable IFAs to group clients by characteristics and offer them packages of investments which can then be tailored as required
 Bulk Transaction capability to effectively automate the process of moving groups of clients into these portfolios whilst securing appropriate client agreements
 Use proven componentised tools rather than through bespoke coding will probably cost a tenth of the price to develop and is simultaneously easier to upgrade, improve and integrate with other systems. Ultimately platforms built this way will be the winners and the notable failures have been those that have tried to go it alone.
 An independent, service-led platform. A wrap that is owned by AXA or Prudential is never likely to be favoured by a NMA.
Of the top 10 true wrap platforms that are well established only Transact, Nucleus and now Novia have ticked all the above boxes. In our view there is still scope for one or two more new entrants if they are prepared to stick to the rules. The deep pocketed IFA firm consolidators like Focus Financial Partners may well be the place to look. These groups are already working with IFAs to help them plan exit strategies and will need to offer platforms to entice them.
If you assume that a good adviser today will look after assets (AUM) worth at least £20 million. An IFA firm with five advisers could achieve AUM of £100 million. A platform only needs to attract 50 adviser firms of that size to achieve AUM of £1 billion. Our estimates are that a platform with AUM or AUD of over £1 billion will be in strong and positive profitability. Wrap platform providers with real focus and on independence-led service should be able to reach this target quite quickly.
Real opportunities for established platform expansion lie in extending beyond offering pensions and investments and into protection and even mortgage products. ‘Workplace Wrap’, sometimes called employee wealth or corporate platforms, offer the other clear route to growth. The employee benefits consultants such as Hewitt Associates and Mercer have an opportunity to step beyond their employee benefit consultancy roles into provision of a corporate wrap platform.
However they need to do it in such as way as not to upset their customers – the employers – or the product providers which already have a big stake in the employee benefits market. We don’t yet know what will happen in this sector but there is certainly a great deal of interest in it as final salary Defined Benefit schemes face increasingly pressure, whilst employers recognise that the way to fill the widening pensions gap is through offering employees flexible and functionally-rich employee benefits environments that look more like SIPPs than the endangered ‘all eggs in one basket’ DB schemes.
Despite the great success of wrap there remains a significant minority of advisers focused on independence who will not be prepared to transfer client assets into wrap platform because they would rather pick funds and negotiate charges direct with fund managers. Wrap platforms need to think hard about reaching this group through clear focus on broadening the choice; increasing the services and tools offered; reducing management charges; and educating them about the benefits of automating so many tasks to the point where efficiencies gained are undeniable to the adviser and ultimately the customer.

The potential for growth and success of wrap platforms looks, on the face of it, very strong. My view is that wrap platform providers that want to attract New Model Adviser (NMA) firms need to offer the following:
 Unbundled and fully transparent charging
 Open access to Unit Trusts extending to UK shares, ETFs and Investment Trusts as a minimum
 A good range of tax wrappers including ISA, Pensions, General Accounts and ideally Insured Company Bonds
 Model portfolios to enable IFAs to group clients by characteristics and offer them packages of investments which can then be tailored as required
 Bulk Transaction capability to effectively automate the process of moving groups of clients into these portfolios whilst securing appropriate client agreements
 Use proven componentised tools rather than through bespoke coding will probably cost a tenth of the price to develop and is simultaneously easier to upgrade, improve and integrate with other systems. Ultimately platforms built this way will be the winners and the notable failures have been those that have tried to go it alone.
 An independent, service-led platform. A wrap that is owned by AXA or Prudential is never likely to be favoured by a NMA.
Of the top 10 true wrap platforms that are well established only Transact, Nucleus and now Novia have ticked all the above boxes. In our view there is still scope for one or two more new entrants if they are prepared to stick to the rules. The deep pocketed IFA firm consolidators like Focus Financial Partners may well be the place to look. These groups are already working with IFAs to help them plan exit strategies and will need to offer platforms to entice them.
If you assume that a good adviser today will look after assets (AUM) worth at least £20 million. An IFA firm with five advisers could achieve AUM of £100 million. A platform only needs to attract 50 adviser firms of that size to achieve AUM of £1 billion. Our estimates are that a platform with AUM or AUD of over £1 billion will be in strong and positive profitability. Wrap platform providers with real focus and on independence-led service should be able to reach this target quite quickly.
Real opportunities for established platform expansion lie in extending beyond offering pensions and investments and into protection and even mortgage products. ‘Workplace Wrap’, sometimes called employee wealth or corporate platforms, offer the other clear route to growth. The employee benefits consultants such as Hewitt Associates and Mercer have an opportunity to step beyond their employee benefit consultancy roles into provision of a corporate wrap platform.
However they need to do it in such as way as not to upset their customers – the employers – or the product providers which already have a big stake in the employee benefits market. We don’t yet know what will happen in this sector but there is certainly a great deal of interest in it as final salary Defined Benefit schemes face increasingly pressure, whilst employers recognise that the way to fill the widening pensions gap is through offering employees flexible and functionally-rich employee benefits environments that look more like SIPPs than the endangered ‘all eggs in one basket’ DB schemes.
Despite the great success of wrap there remains a significant minority of advisers focused on independence who will not be prepared to transfer client assets into wrap platform because they would rather pick funds and negotiate charges direct with fund managers. Wrap platforms need to think hard about reaching this group through clear focus on broadening the choice; increasing the services and tools offered; reducing management charges; and educating them about the benefits of automating so many tasks to the point where efficiencies gained are undeniable to the adviser and ultimately the customer.