Wraps and master trusts – Ignorance may be bliss for unaware advisers
The overwhelming majority of financial advisers know very little about wrap accounts.
That is the finding of a recent survey of advisers by the research house Assirt which found that more than three quarters of advisers know nothing or only a little about wrap accounts. The survey of 455 advisers found that 29 per cent knew nothing about wrap while 47 per cent answered they only knew a little about the service.
But while there is wide spread ignorance of what's on offer, there is a growing expectation that wrap accounts will be a magnet for advisers over the next few years.
In fact, as the table (below) illustrates, advisers expect to more than quadruple the amount of money they will distribute through wrap services within three years. At the moment, only 2 per cent of business flows through wrap accounts.
The big loser from the shift towards portfolio administration services continues to be retail unit trusts, the survey suggests. Retail funds have suffered market share cuts over the past decade as master trusts continue to gain popularity amongst advisers and investors alike.
Half of all business placed by advisers still flows into retail trusts, but according to the Assirt survey, this is likely to decrease markedly over the next three years to about 40 per cent.
Assirt market research manager Sara Jackman says the move is primarily based on access to lower management fees and back office support.
"Wrap accounts are becoming increasingly popular with advisers as they can access cheaper fees through wholesale funds and can combine all their clients' reports into one consolidated statement," she says.
"With this increase in usage, it will be interesting to see whether wrap accounts live up to advisers expectations."
But Jackman says unit trusts will continue to play a major role in retail financial services for many years to come.
"Retail funds will still have a place in the market," she says. "While the increased use of master trusts and wrap accounts could se reduced margins, the direct market is creating much interest at the moment."
Industry pundits say wrap accounts are in a similar position in the market to where master trusts were 10 years ago. In fact, many suggest wrap accounts will eventually gain equal share of the adviser market.
Type of fund business placed last year business placed in 3years change
Retail funds 50% 40% -20%
Master funds 36% 35% -3%
Wholesale funds 7% 8% +14%
Wrap accounts 2% 9% +350%
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