Providers still resisting Wrap investment, finds new
Dunstan Thomas Survey

Main point of failure is likely to be cultural fixation on creating own solutions, says Dunstan Thomas

Only one in ten (10 per cent) of the 183 life offices, SIPP providers and SIPP administrator firms polled by an e-mailed survey commissioned by pensions and investments technology solutions provider Dunstan Thomas in February, found that supporting wrap platforms was the key route to growth in 2008. This comes despite the fact that IFAs are seeing migration of clients onto wrap platforms as a key element of their development plan, according to a parallel study of pensions and investment adviser firms, also commissioned by Dunstan Thomas.

That said, providers and administrators are already preparing for wraps in a number of ways. The majority (41 per cent) are ensuring as many of their products as possible sit on as many wrap platforms as possible this year. Nearly one in five (18 per cent) are building their own wrap platforms. Six per cent have chosen to buy a stake in a key wrap platform provider or wrap technology provider to gain exposure to the potential upside of any opportunity that wraps may present. Just over a third of the market (35 per cent) are still researching the market opportunity, down from 46 per cent of the market in ‘wait and see mode’ when Dunstan Thomas polled the same audience nearly a year ago.

Dunstan Thomas has developed a methodology called Imago Extender which is able to determine how easily ‘extendable’ providers’ back office systems are. Based on this methodology it identifies the key points of integration. These ‘hand off’ points can be used to create automatic feeds of data into and out of wrap platforms from providers’ back office systems. They also offer opportunities for augmentation of products – so that standard pensions products can extend to offer income drawdown options for example.

The survey also probed challenges posed by wraps and came up with some interesting findings:
• The most significant concern (with a rating of 3.15 out of 7) was ‘the costs of technical work’ needed to enable them to support and have a presence in wrap platforms were considered ‘too high’
• Other key concerns were also linked to the scale of the technical task - the risk of ‘IT project failure was considered too high’ and, more specifically, ‘integration between wrap platforms and advisers’ front office/desktop applications’ gained equal concern-level ratings (at 3.23).
Providers were also concerned about integration work to link wraps back into their own back office systems to enable access to policy details from the platforms in near real-time (3.54).

Chris Read, chairman, Dunstan Thomas, commented on these concerns: “Many providers have attempted to build platforms from scratch rather than tapping into the expertise and components that are already built and proven. They need to let go of the idea that they have to create their own platform using all their own technology and IT expertise. The ‘flying solo’ approach will prove too wasteful and slow for advisers who want to migrate now. When you consider that leading wrap platforms have been built from end to end for under £3m each in total, there is really no good reason why it should cost any more than that to build a new platform today.

“Augmenting existing legacy IT platforms with these proven technologies has already been found to be a faster and more cost effective approach for several high profile wrap providers and it reduces the risk of expensive IT failures.”

More positively the majority (50 per cent) of the provider community thinks that integration technology generally, and wrap technology provision specifically, has improved in the last year.

One of the key factors influencing the short-listing of wrap platforms by providers is evidence of ‘strong security to prevent hacking and unauthorised usage’ (with a 3.5 concern rating out of 10); whilst ‘real time valuation of assets and online transaction capability’ came in as equal second influences (3.83). Evidence of transparent charging structures came in fourth (4.33).

Others (21 per cent) see the wrap revolution as something that is being driven hard by the adviser community because they are ‘desperate for a way of curtailing the continuously rising cost of doing business and see wraps as the answer’. Nearly one in six of providers and administrators (14 per cent) see themselves as the community driving this because they have been looking for a ‘better method of distribution after progressively losing control of distribution since depolarisation’. However wraps do not yet get a ringing endorsement from the provider community - only seven per cent believed that wraps have reached a stage of maturity where they are ‘doing the job for advisers’.

More general findings were:
• Providers and administrators see ‘services innovation’ as the key opportunity to grow their businesses this year – 42 per cent of the sample thought this
• Half as many (21 per cent) planned to take advantage of the turbulent market to acquire or partner to get ahead this year
• Just 16 per cent were looking to develop new products
• A further 10 per cent predicted that the key opportunity for growth in 2008 would come from strategic outsourcing.

Outsourcing is a key theme for providers. Nearly two thirds (62 per cent) have outsourced property management tasks linked to running SIPPs. 37 per cent have outsourced investment administration and the same percentage has outsourced annuity administration.

A quarter of the sample has outsourced administration of their entire SIPP portfolio and a quarter had also outsourced payroll administration linked to payments into a SIPP. The trend for more internet-based self-service by policyholders and their advisers was prompting 44 per cent to outsource building and administration of websites to third parties in 2008; whilst a third were outsourcing stochastic modelling calculations to experts this year; and 22 per cent were preparing wrap offerings using suppliers and external partners.

Chris Read, chairman, Dunstan Thomas adds:
“It is clear that providers are afraid of the risk and expenditure associated with running projects to make the most from the wrap opportunity which perhaps explains why a third of respondents are still hanging back. Now that we have developed Imago Extender and are working for several providers, administrators and wrap platform providers, we can say categorically that the integration challenges are not too great and now is a good time to engage in order to take advantage of what is becoming a significant market opportunity… the risks of doing so are very manageable as long as you have determined your strategy for wrap and understand the ‘extendability’ of your systems.”
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Notes to editors:
Dunstan Thomas commissioned Matrix-Data to conduct this survey of 183 pension providers and administrators that were pre-screened for likely involvement in the SIPP market. The questionnaire, tailored to this audience, was dispatched by email on 11th February 2008 and closed for responses on 20th February 2008. A total of 29 responses were gathered in this period – a response rate of 15.8 per cent. For more detailed findings of this survey please make contact with Agility PR or go to www.dthomas.co.uk

Dunstan Thomas commissioned Matrix-Data to conduct a parallel survey of 3,959 financial adviser firm contacts and other intermediary organisations doing pensions business. The questionnaire tailored to this audience was distributed via email on 11th February 2008 and responses were closed on 20th February 2008. A total of 94 completed responses were gathered in this time – a response rate of 2.4 per cent.