What makes a successful platform?

There have been several wraps launched in Britain over the past few years. More fund supermarkets and life and pension providers are currently preparing to launch new platforms. But so far the take-up of these wraps by advisers has been relatively low. So what does a wrap need to offer in today’s market to become a mainstream player, able to compete with the established product providers?

There are five key wrap attributes – shown in the diagram – which, when combined, can offer a complete platform solution for advisers. If any of these elements is missing from a wrap then it cannot hope to attract a significant percentage of an adviser’s business and therefore deliver the efficiency and service potential of the wrap business model.

Given the complex nature of the British product framework and taxation system, a comprehensive range of product wrappers and trust solutions is required to meet the wide range of client needs that an adviser will encounter in the course of his daily business.

A successful wrap platform will therefore offer a much wider product range than a fund supermarket; it should offer advisers the full product “kitbag” to meet all of their clients’ needs, including Isas, personal, executive and Section 32 pensions, a self-invested personal pension, onshore and offshore bonds, a maximum investment plan and many more.

Many products are sold in tandem with a trust solution, which can enhance clients’ control of their investments and improve tax efficiency. A successful wrap will therefore also need to offer a full range of trust solutions and services.

Most wrap providers currently fall short of these requirements and it is perhaps for this reason that advisers have found it impossible to commit all their clients, many with complex financial requirements, to a single platform. There is simply too big a gap between wrap rhetoric and reality.

Competitive charges are essential for wraps to succeed and a platform-level or “transparent” charge is promoted as a key element of wraps by some of the newer entrants to the market. This actually refers to three transparent charges: one from the platform for administration, a fee for advice and a fee for fund management. The main point is that these charges are not bundled together, as is often the case today, where initial commission is paid from the front-end fee and trail commission from rebates to the product provider.

This type of structure may appeal to fee-based advisers and high net worth clients. It has the advantage of simplicity but on the downside is, in most cases, more expensive than traditional bundled charging structures. And while product selection still has a role to play in the justification of “suitable advice”, the concept of adopting a wrap platform with a “one size fits all” charging structure will remain alien to most advisers. This is surely another reason why most wraps have yet to gain a firm foothold in Britain.

Many of the cost savings and service improvements that wrap claims to offer depend on the concept of a single adviser interface and the technology that supports it. The breadth and depth of a wrap’s e-business platform will therefore be pivotal to its success. It needs to offer a comprehensive range of online tools and services to meet advisers’ needs. Online quotes and application forms are just a starting point: as most of an adviser’s time is spent servicing existing investments, it is here that they need most support.

A successful wrap needs to offer a comprehensive portfolio planning and fund research tool. This would normally incorporate a risk-profiling questionnaire, the results of which allow a suitable asset allocation to be established for the client. The adviser can then select the best available funds from across the market with the aid of sophisticated fund filtering software. All of this information should be recorded in reports, so that advisers have an audit trail documenting how they have reached their investment decisions.

A wrap should allow advisers to create and print consolidated valuation statements, with holdings split by product, sector and fund, to give an overall view of the total portfolio.

Because of its “real-time” nature, one of a wrap’s greatest benefits is that it offers the flexibility to re-balance portfolios quickly and with minimal fuss.

One final e-business area in which wraps can add real value is management information. An adviser business that has access to detailed client, asset, product and investment data will certainly have an edge over a business relying on paper-based administration. The ability to integrate all this information with other back-office systems is also essential.

A successful wrap will offer access to a huge range of the best funds available. In certain product areas such as Sipps and offshore portfolio bonds they will also need to offer full investment flexibility – allowing investment in stocks and shares, property and so on.

Some platforms offer access to every fund across all products, and while this approach has obvious attractions for some advisers and clients, there are also downsides. For example, in offering full open architecture, some wraps are unable to offer unit-linked life and pension products, and so typically exclude onshore single-premium bonds, personal pensions, Section 32 contracts and so on.

Of course, the success of a platform will ultimately hang on its ability to meet the expectations of advisers and their clients. In addition to the usual “tick-box” style comparisons of product wrappers, online tools or fund range, key success factors will be the platform’s perceived commitment to the market and to ensuring it keeps pace with developments.

In selecting a wrap, advisers will appreciate that they are selecting a long-term business partner, rather than making a product selection. As such, it is the platforms that offer the best overall fit with their business that will be chosen.

IAN THOMAS
Investment manager at Skandia