Growth and Potential of Wrap Accounts

Wrap accounts, which enable investors to view all their financial assets on one platform, and which have been popular for some time in the US and Australia, are gaining popularity in the UK. A recent report from Datamonitor estimates that £150bn worth of UK assets could be under wrap administration by 2008.

'Wrap Accounts - Next Stop UK' estimates that 'wrappable' assets in the UK (those assets that could be held within a wrap account) amounted to £ 1,768bn in 2002, indicating a huge opportunity for providers.

Wrap accounts offer investors an uncomplicated, flexible and simple service. Investors or their advisors can view all their financial assets on one platform. These can be analysed and quantified according to money value, tax treatment, product type and asset allocation. Online availability also means portfolios can be checked 24 hours a day.

Total market size in the US is $750bn (£390bn) and in Australia $AUD 300bn (£125bn) respectively, which means that in terms of market penetration Australia leads the way by some distance.

According to Alan Shields, Financial Analyst at Datamonitor and author of the report, 'The year-on-year growth seen in the US market in recent years of 40% is not likely to occur in the UK for another five years. However, if wraps are as successful as they promise to be, then growth of this strength could potentially be achieved'.

The speed with which the UK wrap market develops will depend on the implementation of new regulations, namely Sandler's recommendations on commission bias, the Government's Green Paper on the simplification of pensions and the FSA's depolarization proposals, all likely to be in effect in 2005 and all beneficial to the wraps market for reasons discussed in the report. 'All of these proposals are as yet incomplete and un-enforced, slowing down the development of wraps. Indeed, if these proposals were scrapped, the benefits of wrap services would be undermined at every level' comments Shields.

Datamonitor estimates that if these regulations are implemented as planned, 'wrap like' services will have assets under administration of c.£ 150bn by 2008.

The report is based on face-to-face interviews with wrap platform managers and potential market entrants, and covers the provision of wrap services through IFAs and the benefits that they can provide for investors. Assets are made up of retail deposits (bank and building society), life assurance (single premium), pensions, direct equities, bonds (government and corporate), unit trusts, OEICs, investment trusts, investment bonds and foreign bonds.

Datamonitor's web site is at www.datamonitor.com

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

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