UK Wrap Platforms

Introduction

The UK wrap market has developed over the last decade and competitors have entered and exited the market as it consolidates. However, much uncertainty remains regarding the significance of wraps to the shape of the life and pensions market under the Retail Distribution Review reforms.

Features and benefits

* Understand the key drivers that are pushing or pulling assets onto wrap platforms in 2011 and beyond.
* Assess the advantages and disadvantages of different approaches to the wrap market.
* Use Datamonitor analyses to ensure success in launching wrap propositions.

Highlights

Those involved in the development and offering of wraps assert that the increased availability and popularity will have a major impact on how investment products are marketed, sold and priced an on the revenues that are gained from them. However, the market has consolidated and look set to continue in this vein.
A common criticism levelled at analyses of the wrap market is a lack of clear definition of what defines a wrap and what distinguishes the proposition from other complex platforms in the market. The industry continues to assess whether clients, both IFAs and the end customers, are actually in need of such a comprehensive service.

Your key questions answered

* Assesses the impact of regulatory developments affection the wrap market.
* Sets out Datamonitor’s forecasts for ‘wrappable assets’ in the UK market for the period 2010-2014.
* Summarizes the market for warp accounts in the UK and the potential impact of this on life and pensions providers.
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Executive Summary
Datamonitor has developed a clear definition of a "pure wrap" proposition
The potential size of the UK wrap market is identified through the value of "wrappable" assets
Current wrap propositions offer distinct advantages and disadvantages
The future success of players in the UK wrap market depends on identifying advisors' needs
OVERVIEW
Catalyst
Summary
MARKET CONTEXT
Introduction
Wrap platforms are an enabling technology for a better distribution model
Wrap platforms have evolved from the fund supermarkets of the late 1990s
Datamonitor has developed a clear definition of a "pure wrap" proposition
A pure wrap offering incorporates five elements
Other services are deemed to be outside of what is considered a "full wrap" service
Developed wrap markets exist in the US and Australia
Wrap accounts play a major role in the US investment landscape
The Australian market for wrap services emerged in the 1980s
The UK advisory market has been a key push factor for the development of wraps
The potential size of the UK wrap market was €1,027bn in 2009
Retail mutual funds, direct equity investments, ISAs, and collective investments are highly suitable wrappable assets
Regulatory reforms such as A-Day legislation has pulled SIPP investments onto wraps
The tax complexity of bonds and income-drawing options are making a wrap service attractive to IFAs
Datamonitor forecasts wrappable assets to reach €1,706bn by 2014
Pensions reform will attract more assets onto wraps in the future
Advisors are more likely to distribute certain life and pensions products through wraps
MARKET ISSUES
The wrap market under the RDR remains controversial
The RDR aims to identify and address the root causes of problems faced in the advisory and retail investment market
IFAs face three key challenges from the changes proposed under the RDR
Advisors are worried about jeopardizing their independence label by using only one wrap
The debate on platform-specific RDR policies continues to fuel controversy within the industry
The issue of rebates under the RDR remain controversial
Fund supermarkets were successful in promoting the view of platforms as an administration rather than a distribution service
The RDR framework creates pull factors towards wrap platforms
The changing pricing structure of the IFA market creates pull factors towards wraps
IFAs’ choice on independence will depend upon significantly different wrap propositions
Pensions reform will be a major driver of the inflow of funds to the investment market and onto wraps
Future segmentation of the pensions market may encourage IFAs to focus on high net worth investors for wrap platforms
A growing desire among investors to influence the way their assets are handled will help the sales of individual SIPPs
COMPETITIVE ENVIRONMENT
Different types of institution have launched wrap propositions
Fund supermarkets are well placed to effectively enter and operate in the wrap market
Life and pension providers have experience of providing tax wrappers and existing relationships with advisors
IFA consortiums are another body that offers wrap propositions to the market
The emergence of IFA-developed wraps is blurring the boundary between manufacturer and distributor
Few propositions in the market offer a full wrap service
Cofunds and FundsNetwork are two key fund supermarkets within the platform space
Many life and pensions providers offer wrap propositions
Wealth management services such as Novia are also operating in the platform market
7IM offers a separately managed accounts service within the wrap market
IFA-led wrap services are a key component of the UK market
Modular propositions offer alternative and tailored platform solutions to IFAs
BNP Paribas Wealth and Retirement Administration Platform
Parmenion offers both a consolidation vehicle for client assets and those which are to be managed on a discretionary basis
Praemium's platform solution offers multiple configurations to suit different business requirements
There is further potential for consolidation among wrap providers and opportunities may lie in the direct-to-consumer market
Macquarie was a high profile exit in 2010
Aegon is teaming up with Novia to enter the corporate wrap market in 2011
Regulatory pressures are pushing providers towards direct-to-consumer propositions
Future competition lies in the potential for banks to enter the wrap market
THE FUTURE SUCCESS OF WRAPS
The identification of advisors’ needs is crucial in launching a successful wrap proposition
The full advantage of a wrap can be realized through placing legacy business on the platform as well as new business
Providers must put less effort into branding exercises and instead focus on delivering full functionality and high quality service
Advisors will be looking for providers who heed capital adequacy requirements and keep continuous development at the forefront of their strategies
However, value-focused concerns are keeping advisors skeptical
The magnitude of picking the right wrap proposition also delays uptake
Wraps should be viewed and sold as a new distribution channel rather than as a product
Providers of an evolutionary wrap service are best placed to suit IFA customers across the board
The accurate targeting of likely firms must be done slowly and steadily
The problem for future market development may be having too many propositions aimed at the high end
APPENDIX
Definitions
Single premium policy
Regular premium
New business
Wrap accounts
Product definitions
Life-based savings products
Life assurance
Single premium life
With-profit bonds
Unit-linked bonds
Income and growth bonds
Guaranteed equity bonds
Distribution bonds
Purchased life annuities
Other bonds
Annual premium life
Endowment policy
Whole of life insurance
Term assurance
Income protection
Critical illness
Collective life
ISAs
Personal pensions
Stakeholder pensions
Group personal pensions
Department of Social Security rebates
Employer sponsored stakeholder pension (ESS)
Self-invested personal pensions (SIPPs)
Free-standing additional voluntary contribution (FSAVC)
ABI definitions of distribution channels
Independent financial advisors
Direct sales forces
Tied agents
Multi-tied agents
Bancassurance
Direct marketing
Telesales
Other
Matrix-Data definitions
IFA firm types
Grossed annual aggregate turnover
IFA sales people
Methodology
Regression analysis is unsuitable for life and pensions forecasting
Datamonitor uses a qualitative forecasting methodology for life and pensions
Further reading
Ask the analyst
Datamonitor consulting
Disclaimer
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