The investment industry’s fascination with wrap accounts is a case of “back to the future”.
The investment industry’s fascination with wrap accounts is a case of “back to the future”.
Advisers need to more objectively scrutinise the advantages of investment oppor-tunities that do not fall under the traditional “wrap” label.
For instance, trustee companies have been offering wrap-style products for years, under the banner of portfolio management services (PMS) and back office administration.
Advisers should be careful not to be hypnotised by the promised benefits of products branded as wraps when other products may be more suitable for their clients. Advisers should realistically compare wraps with other options, espe-cially those offered by trustee companies who, in some cases, have broader expe-rience and offer more flexible products.
The choice should also be determined by the individual client’s needs. Some wrap account offerings, while promising the world, simply are not delivering all the flexibility required by investors. In these instances, the adviser needs to be aware of the alternatives on offer so that a better choice can be made.
That ensures the investor gets the service and reporting that he or she re-quires, and this in turn guarantees the strength of the relationship between the adviser and the investor.
Elements of wraps that are often found to be inadequate include transacting and reporting capabilities, as well as tax calculations (especially CGT). The GST is now another consideration for potential and existing users.
It’s easy to get caught up in the hype surrounding wraps, because they have been hailed as the ultimate service. Instead, advisers should look carefully at the benefits of the particular product they choose, so their own business doesn’t suffer as a result of the wrong choice.
The main differences between a trustee PMS and some wrap accounts are that a trustee PMS:
* usually leaves the assets in the client’s name
* offers complete CGT reconstruction, recording and reporting
* includes most types of investments
* operates on well-established mainframe systems
* offers a simple, straight forward fee structure
A trustee company PMS usually also offers the flexibility of access to wholesale funds, most unit trusts, all ASX-listed securities and international listed se-curities. They also allow instantaneous access to up-to-date reports, flexibil-ity in fee handling and all income/dividends/distributions are collected and re-corded (corporate actions and settlements are also attended to). CGT history is maintained and there is constant updating of portfolio values.
Most importantly, the adviser remains the client contact point at all times and all contact is via the adviser. This can be a great comfort to the adviser and strengthens the relationship between them and their clients.
Peter Cocks is general manager – marketing and business development for TOWER Trust.
