Groucho Marx may have been reluctant to join a club that would accept him as a member but the same cannot be said for applicants to the wrap and platform club where membership has swelled recently.
Among the newest arrivals are Zurich, which is currently dotting the i’s and crossing the t’s on its proposition, while Aegon’s wrap (launched in pilot form in November and targeting the retirement saving market) will become more widely available shortly, bringing the number of platform players to more than two dozen. Meanwhile those already enrolled are toiling away at making their wraps ready for the post RDR regime in January 2013: finalising charges, what investments they will offer and who they are targeting, whether it is high net worth, mass market or the whole caboodle.
A spokesman for Zurich, which plans to launch its intermediary platform in the second quarter to selected partners, is focusing on the mass affluent with its platform that offers “a wide range of funds pension and investments (a cash Isa, a stocks and shares Isa, General Investment Account, and a Sipp, plus ETFs and other investments via an external stockbroker).” It says additional wrapper elements will follow.
A key driver for recent growth in the market is certainly RDR, with total assets under administration now over £165 billion, according to market research group Defaqto. And once Zurich and Aegon are settled in, activity is likely to revolve around existing players’ preparations rather than seeing more new players joining the fray, at least for the time being. William Watling, director of business development at Capita Financial Software, which provides a wrap comparison tool for advisers, believes the wrap and platform club is almost full - at least for now. He said: “That will be it for 2012 because so many of the players and the advisers are up to the gunnels with preparing for changes before RDR. That’s a major undertaking particularly as the FSA still hasn’t clarified the position for rebates yet. The date for RDR doesn’t move but the date for clarification keeps moving.”
The FSA has been agonising over the rules regarding cash and fund manager rebates on platforms, leading to some confusion. Mr Watling said: “It’s not just the platforms that are affected but the fund managers on the platforms who are setting up new shares classes. They need to liaise with administration people. It touches every part of the industry.” The FSA confirmed to Financial Planner that it will give players plenty of time to prepare for the scenario but re-iterated its previously stated intention that cash rebates from product providers will be banned. A spokeswoman said: “We are cognisant that providers will have to expend a significant amount of time and energy on this and the timing will reflect their need to completely change their business models. We will be putting out another consultation paper shortly on which providers can give feedback.” While this uncertainty continues in the background, Mr Watling believes pricing will be the big theme of 2012. He said: “There is a lot of competition in the market. We are updating price information bi- monthly because of the volume of changes.”
Malcolm Murray, head of marketing at Transact, agrees that cost is an issue but adds that cutting prices to the bone will not be his firm’s strategy. He said: “The lower charging platforms are a bit like Ryanair, they add on costs for extras. Customers have to look closely at what they’re getting.” And Transact is putting aside concerns about the FSA’s rebate rule delays. Mr Murray said: “Some platforms have been waiting to hear what the FSA will finally decide. We’ve taken a different attitude and just got on with things. We can’t worry about the final rules being drafted as we need to look after clients. We can adjust the software when the decisions are made quite easily as we own the software behind the wrap. Whatever the final rules are we will have everything in place by 2013. We managed it with the change in capped drawdown rules in April last year and with Junior Isas last November. Other providers weren’t ready in time.”
Much of the activity in the market to date has been advisers moving existing client money onto a platform or wrap either for the first time or from another platform to gain from the administrative efficiencies and ease of monitoring portfolios and organising asset allocation. Mr Watling estimates that around 80 per cent of assets of the firms he comes across is replacement business.
At Transact Mr Murray says of the £11.3 billion in assets on its wrap around 60 per cent is re-registered while 40 per cent is new money. However, he says pension transfers are included under cash. Mr Murray says Transact’s big challenge currently is to decide which customers to target next. He said: “We have 5,000 users at the high end so what we are looking at now is the next 5,000 for whom we were previously second choice platform.” Targeting one type of investor or being content to play second fiddle to other wraps are strategies being adopted by some providers as they see themselves fulfilling a role within the FSA’s vision that advisers are unlikely to be offering suitable advice with just one wrap proposition. Pressing ahead in this vein is Alliance Trust Savings, subsidiary of investment trust giant Alliance Trust, which aims at high net worth customers. Not a new player in the platform market (it has offered a direct to customer platform for many years) but new-ish to the intermediary business is Alliance Trust Savings, which prides itself on transparent and good value pricing, especially for high net worth clients. Patrick Mill, sales and distribution director, said: “Platforms will have to find their place. For us, if customers have more assets under management they benefit from our pricing structure.”
He added: “We see ourselves as a secondary platform as our proposition complements others as we are very different on pricing and in investment choice. There are several reasons to choose us. Anyone with £50,000 of assets should consider us as it’s likely they will be better off with us.”
Mr Mill says Alliance is ready for RDR. He said: “We have always been prepared in terms of adviser charging. We only pay advisers what has been agreed with their clients. We also do totally transparent charging. They see on their statement what we have taken and the administration charges. We only take a wrapper fee and a transaction fee. The rebates go back to the client.” Garry McLuckie, Alliance’s marketing director, added: “The additional aspect in the platform space is the requirement for advisers after RDR to look at investment trusts and what our platform offers is a whole of market investment trust range which is pretty unique.”
An anticipated hotting up of competition with pricing does not worry Alliance as it believes it is well placed. Mr McLuckie said: “It is not a concern for us as we have a fair rate and transaction pay as you go model rather than an ad valorem model.”
While Alliance aims to concentrate on the better- off client, Aviva, now on its second attempt at the wrap market (its first foray failed due to service issues), has confirmed it will target the mass market and work on keeping down costs. Phil Ralli, senior marketing manager at Aviva, who is in charge of platform strategy, said the decision had come after listening to advisers. He said: “Lots of advisers are telling us of concerns about how can they continue to give advice affordably and profitably after RDR. Although customers have been paying commission through product charges, there is still a perception that they will be paying new and extra charges for the first time.”
As with Alliance, Aviva does not expect to be a planner’s only wrap offering. Mr Ralli said: “The FSA is being clear about its expectations and we don’t anticipate an adviser will use a single platform only. What we are trying to do is be clear about the types of client we are best for: those with simple, unsophisticated Financial Planning needs.” Mr Ralli added: “They are asking how they will actively be able to continue to service these clients. So our approach is to try and make our platform and services as easy to use as possible making sure they have the same functionality but minimise the costs so that they have the opportunity to keep down charges.” He says it is going to be a “long but exciting year and an enormous amount of hard work.” Mr Ralli added: “We have less work to do than if our charges were bundled - we have always been unbundled. I’m glad we do not have to prepare for that. We are working on linking our Aviva for Advisers service with its traditional package products to the wrap platform so there is one entry point for the same information.”
He also predicts consolidation in the high net worth platform arena as he thinks there are too many concentrated on that market. Aviva’s platform has nearly £800m under management currently, two-thirds of it through adviser business. Mr Ralli says even planners who used the company’s previous platform are using the newer offering with confidence. He said: “We learnt an enormous amount from the earlier experience that the due diligence we do with partners must be thorough and that you don’t get any nasty surprises and make sure our platform is as automated as can be.”
Meanwhile Financial Planners are adopting platforms enthusiastically. Amanda Davidson CFPCM of Baigrie Davies in London, is a wrap enthusiast. She said: “We use Standard Life mainly plus Cofunds and FundsNet and also Platform One, a German wrap powered by Moventum, for the offshore and expatriate business we are developing.
Ms Davidson added: “We like Standard Life’s wrap and have been using it for three years or more. We were early adopters and did a lot of due diligence. The system suits clients well and we have a good relationship with Standard Life. They listen to us. It is better for high net worth clients, not really for those with a couple of thousand pounds in an Isa. We can move funds around and rebalance portfolios. It makes asset allocation very visible. Clients can look at it too. Some clients look at it avidly, others don’t look at all. It’s a rare day that I’m not doing something on the wrap.” She does not believe multi-wraps are necessary for all advisers.”
While Ms Davidson is content with Standard Life she is not complacent. She said: “Due diligence is not just a one-off when you buy first time even though a platform does cost a lost to set up. You must keep updated.” She believes wraps are essential and can’t imagine a planner managing without. As for players, she predicts that more will arrive in the run up to RDR but after that consolidation is likely.
Andrew Flowers CFPCM of Vizion Wealth in Milton Keynes, is also a keen and active user of platforms and wraps, using True Potential for the lower end, Elevate as his main platform and Transact for higher net worth clients. Although he has worked for big firms, Mr Flowers has just recently set up on his own firm. He said: “Wraps and platforms are invaluable tools and make your business more efficient. I’m a true believer. Whatever platform I recommend to a client will depend on their needs. I also have an open mind and if something better comes along which is more competitive or has better tools I will look at it.”