Platforms and wraps?

jillk_2

My IFA is recommending that I transfer my portfolio of investments into the Standard Life Platform (or is it called a wrap?). I’ve researched platforms on the net, but all websites outline advantages for the IFA, or the fund manager, but none bothers to explain what’s in it for me as the original investor. My IFA has tried to explain, but he only knows jargon and I only know plain English. Has anyone been down this road already? What can I expect if I do transfer my investments to a platform, especially advantages, disadvantages and costs? What is in it for me? Thanks

dunstonh

My IFA is recommending that I transfer my portfolio of investments into the Standard Life Platform (or is it called a wrap?)

At the moment, I believe theirs is a platform. I have never used their platform.

I’ve researched platforms on the net, but all websites outline advantages for the IFA, or the fund manager, but none bothers to explain what’s in it for me as the original investor.

Most platforms dont cost a penny to the consumer to use. Most offer online access to valuations and some with the ability to switch funds. So, if they are cost neutral to the client, you get 1000-2000 funds available in one place. Indeed, many fund supermarkets are actually cheaper than buying direct.

My IFA has tried to explain, but he only knows jargon and I only know plain English.

Not ideal and it shouldnt be difficult.

Has anyone been down this road already?

Loads of people whether they are DIY or use an IFA. They days of buying direct from providers are long gone. In most cases, there is little or no reason not to use a platform.

What can I expect if I do transfer my investments to a platform, especially advantages, disadvantages and costs?

Can you explain what you mean by that?

If you had say JPM Natural resources fund direct or on a platform that is cost neutral then you would get the same performance and same charges. There is no advantage or disadvantage. If you wanted Fidelity, Gartmore, Inv Perp etc etc funds in your portfolio as well then the benefits really start to kick in as you can have all those on a platform but you cant if you use the old fashioned way and go direct (assuming ISA).

jillk_2

Thanks for the reply. I'm still unclear as to what I can hope to gain by joining a platform. My investments are spread over about 12 funds including ISAs and I look for long-term growth, security and a regular income (my investments are my pension). I can see the advantage for my IFA (reduced costs) and for Standard Life (obvious) but what do I as an investor hope to gain?

If there is no disadvantage somebody is giving me something for nothing and that just doesn't happen. If there is no advantage, then I might as well leave my investments alone. I'm afraid I just don't understand.

dunstonh

I can see the advantage for my IFA (reduced costs) and for Standard Life (obvious) but what do I as an investor hope to gain?

Lower costs, more funds, single point of administration.

The insurers actually have more to lose with a platform than gain. Some are now getting into bed with existing platforms or creating their own with the view that something is better than nothing.

EdInvestor

Perhaps you should suggest he reduce his charges in payment for you allowing him the extra benefits of using the wrap.

dunstonh

EdInvestor wrote: »

Perhaps you should suggest he reduce his charges in payment for you allowing him the extra benefits of using the wrap.

There has been no comment on the charges levied and to be honest, there is little adviser benefit for using the standard life platform as it doesnt integrate with most of the IFA back office systems. So, I cant see what he gets to gain from it compared to the larger or more fully featured platforms.

Tom32y

There are many advantages of wraps. I dont know anyone that uses Standard lifes version of it so its hard for me to comment on that, the most popular wrap is Transact and ive heard plenty of advisers say its the easiest and best to use, although im going to be slightly bias as i used to work there.

Is your adviser keeping the same funds as what your currently invested in or investing in lots of different ones that werent previously available?

One bonus for you is that the fund manager charges are cheaper through Transact and possibly Standard Lifes wrap, last time i looked something like Gartmore's China Opps had an intial fee of 5% whereas brought through Transact it was something like 0.2%. Will probably be similar through Standard Life.

But really your Adviser should have explained all off this clearly to you if he was doing his job properly!

Totton

Having access to the platform won't do you any harm and in the future you may find it useful.

jillk_2

Hi everyone - many thanks for your comments and advice. I've tended to view my investments as long term prospects rather than speculative carriages to quick riches. Because I've rarely switched funds, my charges have been minimal. With the platform, I can actually see charges for my account increasing, because the IFA wants 'greater flexibility' which is presumably jargon for the opportunity for him to make more money out of me.

Or am I being too cynical? It strikes me that everybody makes money out of money except the owners of the money. My concern is that interposing another layer of management (the platform or wrap or supermarket - why can't the industry at least agree common terminology?) can only add to expenses, which ultimately I must meet because I own the money.

That's why I'm struggling to understanding how my bottom line will be improved. I understand flexibility; I understand transparency; I understand reduced paperwork; I understand reduced charges.

But nobody has answered my initial enquiry - what's in it for me as money owner i.e. how will my bottom line improve? How will I make more money? I don't mean by how much; I mean how CAN it improve?

Perhaps I am being dense. But I can't seem to find out how the system actually works and operates in the market.

Thanks for your help.

dunstonh

Because I've rarely switched funds, my charges have been minimal.

For many platforms there are no charges on switching.

With the platform, I can actually see charges for my account increasing, because the IFA wants 'greater flexibility' which is presumably jargon for the opportunity for him to make more money out of me.

Have you any evidence of that?

Its possible as not all platforms are cheap but with most being cost neutral or cheaper then you shouldnt assume its the case.

One of the reasons I use fund supermarkets is the lower cost and the integration with our software. We get daily values, can produce reports and investment analysis which would just be more time consuming and therefore more expensive to you when it comes to looking at that data (assuming fee basis). With a fund supermarket, I can turn round a valuation and a investment analysis report in less than a minute. With individual fund houses it can take 15-30 minutes as you have input the data manually each and every time. If you are paying by the hour on fee basis, then its clear to see the advantage. Especially if the investments themselves are not costing you any more and could be costing you less.

Or am I being too cynical

quite possibly. Its better to work on fact and not guessing. Ask the IFA what the difference in charges is.

My concern is that interposing another layer of management (the platform or wrap or supermarket - why can't the industry at least agree common terminology?) can only add to expenses, which ultimately I must meet because I own the money.

A wrap may add an extra layer of charges and that is one of the reasons I am not keen on them. Many IFAs already run back office software that can effectively do the job of the wrap at no extra cost to you.

However, a wrap is different to a fund supermarket. Fund supermarkets dont tend to add a layer of charges and are the ones that are often cheaper or at least cost neutral.

Platform is the term used collectively to include wraps and fund supermarkets.

But nobody has answered my initial enquiry - what's in it for me as money owner i.e. how will my bottom line improve? How will I make more money? I don't mean by how much; I mean how CAN it improve?

We have answered it. I can mean lower charges and therefore lower charges for the same thing will mean better returns.

All you need to do is ask your IFA for a cost comparison. what you have now vs what he is proposing. He should have done one anyway and have it on his file as his own research. You would typically expect exactly the same or cheaper.

jillk_2

Hello - once again thank you very much for your excellent advice. I will revert to my IFA for a cost comparison. He hasn't provided one and I can see I need to have more figures based on my investments specifically.

Can I ask you two more questions please? In the highly unlikely event of a platform going bust (and let's bear in mind the situation with Lehmanns and half the banks in the UK over the past couple of years) do I stand to be wiped out? And what is the legal status of the platform? Is it an agent, a broker, a principal, a bank, an IFA - or something entirely new?
Thanks very much indeed for yor advice.