In my job as a financial adviser the current pace of change is moving faster than I’ve ever known; it and clients are needing to run fast if they want to keep up – of course some prefer to just leave all of that to me.
At some stage within the near future you may well come across the term ‘Wrap Account’ in relation to your own investment matters, if you haven’t done so already. Wrap is the big change happening in the finance markets at the moment. This change is fast gathering pace, prompted by the regulators demanding high levels of service and consistency from financial advisers and the FSA will come down firmly on those advisors who do not step up to the mark.
The best way I can describe a Wrap is that it is an administration system designed to provide a simple and reliable way to have your investments and pensions collated and updated securely in one convenient place.
This can mean just one convenient statement for most of your investments and secure online access where you can view a number of investment types in one place.
A Wrap can include ISAs, Personal Pensions, SIPPs, Unit Trusts, Investment Bonds, shares, gilts, ETFs and various other types of investments, all under one convenient umbrella. The Wrap allows investment across the market, not just the one investment company. This is a big change from the past when an individual investor would have various investment products scattered across a number of different companies, each with its own, usually cumbersome, administration system.
Currently there are many Wrap providers; some will be names that are new to you, some well known brands. Sometimes, it can be the lesser known names that provide the best Wrap services because this is their only role. In the fullness of time I expect some providers not to survive as the ongoing development requires very large capital investment and there is only so much business to go round. One major provider estimates that the market for this could be in the region of £400 billion in ten years time. Eventually, I think the market will be dominated by a handful of Wrap providers. The weaker companies will simply be eaten up by the stronger ones, but this does not mean a threat to the financial security of your investments.
From my point of view as an adviser Wrap is great as it strongly enhances the quality of service and advice I can offer for clients. Most Wraps include sophisticated “tools” that advisers can use to benefit clients. These tools include fund research, risk analysis, model portfolios, switching, rebalancing, and tax analysis.
Most advisers like to be able to offer carefully constructed portfolios designed to match an investor’s tolerance to risk. These tools make the job much easier which means that investors may benefit in the longer term from better returns and hopefully some protection against market volatility. Some advisers like to carry out their own research, some prefer to outsource this to specialist firms, but either way the Wrap is well placed to handle this.
Anyone who has been invested over the last few years should now be well used to volatility as we’ve had some troubled times. The Wrap can help the adviser to help his clients in times like this by reacting to market changes quickly and positioning portfolios for clients. Of course you will still be relying on the wisdom of the adviser, or the outsourced investment manager. Some may be concerned that the improved level of service will add to cost, and whilst some Wrap providers apply penalties for moving away, or do not allow you to transfer easily, this is not always be the case. The market is very competitive and with the coming of the Retail Distribution Review in 2012 costs are really under the spotlight and already investors are benefitting from this. If anything, advisers can offer better value by selecting the right Wrap allowing you to benefit from the slick administration services of Wrap accounts.
Wraps can be regarded as a one-stop, lifetime investment which can adapt to changing circumstances. It is not for everyone; an adviser should assess whether or not a Wrap is suitable, however, some will be perfectly satisfied with their current arrangements. Those who can see the benefit may not be able to move to Wrap overnight due to the nature of existing arrangements which may have tie-ins or penalties for moving out. For most people a gradual transition is the way forward.
So if you can see the potential benefit of having your investments in a Wrap all you need to do now is find an adviser who knows how to use the facility properly and at a price that you feel is fair and reasonable.