UK financial advice wrapped up!

Wrap accounts have the potential to dramatically alter the UK's financial services landscape. According to a new report on the sector from Datamonitor, the UK is Europe's fastest developing market for wrap accounts.

Speculation that large pools of assets will be suitable for inclusion in wrap accounts has been fuelled by the entry of several new players with wrap-like offerings, the promise of major regulatory change and the success of wraps in the US and Australia.

Datamonitor forecasts that £150 billion worth of assets in the UK could be under wrap administration by 2008. According to Datamonitor, the Independent Financial Advice (IFA) market, and through this, the major life and pensions and asset management companies that supply products to this market, will be most impacted.

Awareness of wraps amongst Independent Financial Advisers (IFAs) is growing rapidly. Datamonitor's exclusive IFA survey reveals that almost seven out of ten UK IFAs are now aware of wrap platforms - this compares to a mere 2 out of ten in 2002. In addition, over a third of IFAs surveyed currently say they offer some form of wrap product to their customers. The survey questioned a sample of 100 IFAs about their knowledge of wrap products, their attitude to wrap providers, the shape they expected these products to take, the impact of wraps on their customers, their view of the wrap account market and the impact it will have on IFAs.

Almost three-quarters of wrap-aware IFAs in the UK believe their customers will be investing in wraps in the future, with 19% of them expecting over 30% of their clients to do so. 'Awareness of wrap accounts has exploded in the UK's IFA community. However, while awareness of wrap accounts has increased it will take much longer for a large part of the market to start using the accounts for a significant part of their client base,' comments Oliver Guirdham, Financial Services at Datamonitor and author of the report.

The UK and Italy are the most attractive markets for wrap products in Europe. The high level of awareness and confidence in wraps in the UK market contrasts with the situation in the rest of the Europe, where awareness of wraps is low. On average in continental Europe just 10% of distributors are aware of wrap accounts, and very few believe that wraps will be widely adopted.

However, Italy is the exception. It already has a developed wrap market, with more than an estimated USD150bn invested in these products. Both, Italy and the UK offer large pools of assets that are suitable for inclusion in wrap accounts. In the case of UK there is a high level of direct equity investment, while in Italy there is a high level of bond and mutual fund holding. In the UK distribution is dominated by IFAs, and Italy has a growing financial advice channel.

Despite market attractiveness, Datamonitor cautions against massive expenditure by life and pension companies on developing bespoke wrap platforms yet. This is because the wrap market in 2008 will still contain less than 8% of total retail investable assets. Furthermore, early growth in the wrap market will be at the higher net worth end of the market and the priority will be wrapping direct equity and mutual fund investment. The wrapping of large quantities of life and pensions business will come three or more years from now when the technology is in place and wraps have an increased level of penetration in the IFA market.

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.

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