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Wrap accounts Opportunity or threat?

Wrap accounts Opportunity or threat?. David Ferguson 2 March 2005 david@the-abacus.com +44 7974 353801. 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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Wrap accounts Opportunity or threat?

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  1. Wrap accountsOpportunity or threat? David Ferguson2 March 2005 david@the-abacus.com+44 7974 353801

  2. 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?

  3. A service that allows IFAs tomanage all their clients’ assetsand liabilities to best effect Definition of wrap

  4. UK market background

  5. 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

  6. 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

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

  8. Evolution • Fund supermarkets • US / Australian experience • Sipps • Convergence of life, pensions and mutual fund savings ‘products’

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

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

  11. Current issues • Speed of adoption • Historic IT spend • Regulation • Re-registration • Business models

  12. The impact! Intransigence = + Sales impact Legacy impact A-Day x Fn {margin drift, distribution quality} Fn {persistency, performance, distribution model}

  13. IFA drivers Client proposition Business value

  14. IFA opportunity IMPROVED INCREASED Client proposition Administration costs Asset-based revenue REDUCED

  15. Market value UK life industry c£100bn UK IFA sector c£500m ?

  16. Legacy issues • Value of client • Surrender penalties • Market value reductions • Tax • Specialist products and assets

  17. Annuity Personal pension EPP Pep Isa Sipp Endowment Direct holdings Section 32 Onshore bond Offshore bond

  18. Market value UK life industry c£100bn UK IFA sector c£500m ?

  19. Wrap

  20. Market value - now UK life industry c£100bn UK IFA sector c£500m

  21. Market value - post wrap UK IFA sector c£3-5bn UK life industry c£80bn

  22. How might you respond?

  23. Understand your business model What do you really add to the asset accumulation market?

  24. Consider your commitment to open architecture Are you shifting on more than just the buck?

  25. Leverage your distribution relationships Is this is where your future lies?

  26. Appreciate emerging technology Do you really need to invest at historic levels?

  27. Wrap accountsOpportunity or threat? Questions

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