Wrap accounts Opportunity or threat?

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Wrap accountsOpportunity or threat?

• David Ferguson2 March 2005
• david_at_the-abacus.com44 7974 353801

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Agenda

• What is a wrap account?
• How is the UK market developing?
• What are the key issues in the UK?
• Value transfer
• How might you best prepare and respond?

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Definition of wrap

• A service that allows IFAs tomanage all their
  clients assetsand liabilities to best effect

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UK market background
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Wrap model - a UK definition
User interface
Analytical and support tools
Direct
Pep/Isa
Sipp/ post-2006pension
Offshorebond
Cash Deposit a/c Trading a/c Income a/c Loan
a/c Mortgage a/c
Assets Mutual funds Equities Gilts Bonds Other
Property Commercial Residential
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Wrap model - UK real world
User interface
Analytical and support tools
Restricted tools
Direct
Pep/Isa
Sipp
Offshorebond
Legacy products
Cash Deposit a/c Trading a/c Income a/c Loan
a/c Mortgage a/c
Assets Mutual funds Equities Gilts Bonds Other
Property Commercial Residential
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Key issues

• Enhanced client proposition
• Back office efficiency
• Logical conclusion of open architecture
• Margin - magnitude and ownership
• Value

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Evolution

• Fund supermarkets
• US / Australian experience
• Sipps
• Convergence of life, pensions and mutual fund
  savings products

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Pricing

• Becoming transparent
• In headline terms
• asset management - 75bps
• financial advice - 50bps
• wrap manufacturing - 50bps
• Total cost in line with naked fund cost

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Current providers

• Pure wrap
• Transact
• Abbey
• American Express
• Supermarket-based
• Selestia (Old Mutual)
• Skandia
• Wealth management
• Seven Investment Management

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Current issues

• Speed of adoption
• Historic IT spend
• Regulation
• Re-registration
• Business models

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The impact!
Intransigence


Sales impact
Legacy impact
A-Day
x
Fn margin drift, distribution quality
Fn persistency, performance, distribution model
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IFA drivers
Client proposition
Business value
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IFA opportunity
IMPROVED
INCREASED
Client proposition
Administration costs
Asset-based revenue
REDUCED
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Market value
UK life industry c100bn
UK IFA sector c500m
?
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Legacy issues

• Value of client
• Surrender penalties
• Market value reductions
• Tax
• Specialist products and assets

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Personal pension
Annuity
EPP
Pep
Isa
Sipp
Endowment
Direct holdings
Section 32
Onshore bond
Offshore bond
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Market value
UK life industry c100bn
UK IFA sector c500m
?
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(No Transcript)
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Market value - now
UK life industry c100bn
UK IFA sector c500m
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Market value - post wrap
UK IFA sector c3-5bn
UK life industry c80bn
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How might you respond?
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Understand your business model

• What do you really add to the asset accumulation
  market?

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Consider your commitment to open architecture

• Are you shifting on more than just the buck?

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Leverage your distribution relationships

• Is this is where your future lies?

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Appreciate emerging technology

• Do you really need to invest at historic levels?

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Wrap accountsOpportunity or threat?

• Questions