Whatever you want to call them, baby wraps have enjoyed phenomenal growth in the past few years.
Advisers have really taken to the cut down versions of the full service wrap and those platform providers that initially ignored them, quickly joined the party.
Colonial First State has been accredited with introducing baby wraps although this is disputed by some of their rivals.
Regardless of the questions over who invented simplified wraps, Colonial has achieved considerable success with their platform.
Colonial First State general manger product and investment services Alan Kenny said there was still room to develop FirstChoice further which will still fuel growth.
“The key to growing a platform is scale and having a robust model to develop other additional services,” he said.
“We have just launched FirstChoice margin lending which shows we can take a market product and incorporate into the platform without adding complexity for the adviser.”
Kenny said the key was to add the product or service without changing the way they operate.
“We took first class margin lending technology which means you don’t have to reinvent the way of doing business or make it more complicated,” he said.
“We build the margin lending option within the platform and not just bolt it on.”
Kenny said whatever is added to FirstChoice, the rule is to keep it simple.
“We will only grow if we keep it simple,” he said.
“We will only grow the platform slowly and move into new areas when it makes sense.”
Kenny said baby wraps can offer a number of choices for advisers but the rule of keeping it simple must still prevail.
“The baby wrap is simple to operate yet it offers the adviser enough choices for most advisers,” he said.
“For many advisers they have become the core platform and we don’t make any distinction between baby wraps and full service platforms.”
Kenny said a platform doesn’t have to offer 400 different funds to succeed as the advisers Just want a manageable structure that will make their business operations more efficient.
“There is a lot of flexibility in what can be put on the wrap and we are just about to launch FirstChoice Asian Shares option,” he said.
“There are a number of Asian share managers but the advisers don’t know who to go with so we have introduced a multi-manager option.”
Because FirstChoice was designed as a new platform from the outset, the company doesn’t have the legacy systems that some of the older platforms operate and integration of new products was easier.
“This means our systems and processes have been developed with a retail focus and we can respond to adviser demands quicker,” Kenny said.
MLC general manager superannuation and investments Anthony Waldron said MLC has had a baby wrap since 1999 under the MasterKey brand.
He said it was a cut-down version of the full-service platform and advisers were using to for specific customers who didn’t want a lot of services.
“For the more complex client, who wants access to direct equities for example, the adviser would use the full-service platform,” Waldron said.
“The adviser does need both versions of MasterKey and we believe they can operate very effectively together in a single practice.”
Aviva general manager wealth and products Andrew Barker said the cut-down wraps still have a role to play.
“We are starting to see advisers use them for the smaller clients who only want a simple plan,” he said.
“As the client grows they can then transfer to the full service platform with more options and without tax implications.”
Barker said some platform providers were putting more options on the baby versions as advisers demand more services.
But he can’t see the point of making a baby version as an imitation of the full-service platform.
“You get what you pay for and we would rather give the adviser a choice between the two,” he said.
Perpetual general manager adviser distribution Damian Crowley agrees baby wraps are being used for different client segments.
“We see separate clients for either type of wrap with full service platform for untied advice,” he said.
“The baby wrap segment is growing and will create opportunities for certain client segments in the future.”
Crowley said while baby wraps offer limited investment choice, inflows still go to only about 20 to 30 per cent of the investment options.
“Platforms will become better at looking at what funds they offer due to the 80:20 rule applying to inflows,” he said.
But ING head of product and strategy personal investment David Kan said the lower cost of baby wraps did mean the adviser was offered less options.
“But most investors don’t want the full range of services offered on traditional platforms,” he said.
“They will want services such as direct shares, which platforms can provide.”
Kan said the important part of offering additional services on baby wraps was the client doesn’t need to see complex administration processes.
“All they and the adviser wants is their investments processed without errors,” he said.
“So we will see products… being developed for platforms to deliver the type of direct shares most investors want.”
“If they want some different direct shares, they will have to look at the full-service platforms and be willing to pay.”
However, Netwealth managing director Michael Heine questions the role of limiting the product offering on wraps when clients and advisers want to move into specialist products.
“You have advisers trying to find more alpha returns in their equity investment products, yet the specialist funds aren’t on the baby wraps,” he said.
“And investors in self-managed funds find wraps don’t deliver a comprehensive report that covers all their assets.”
Netwealth has always offered a comprehensive range of funds and products believing choice for the adviser is a key point of difference.
But Heine admits pricing is often the driver and that does restrict the investment options that are available on the baby wrap.
“Perhaps that is what some advisers want for their clients,” he said.
