Baby wraps grow up

No platform provider is now without the ‘baby’ or ‘lite’ version of the full service wrap.

In most cases, these lite platforms have attracted substantial inflows without cannibalising the main product.

Some providers have also found new markets for wraps, as clients with low account balances are attracted to the simple options and lower fees.

Macquarie Advisory Services division director Matthew Rady says his company’s lite version is cut down from the main platform.

“It has been very successful, but attracts small funds under administration (FUA) balances from many clients,” he says.

AMP manager flexible lifetime products Deanna Burke says lite wraps are acceptable as long as the delivery is “simple and flexible”.

“The level of options can vary and there are lite wraps that have offerings that are easy to use,” she says.

A late player to the lite platform market is Aviva, which only launched its wrap last year.

Aviva Australia group director products Rob Donaghy says: “The lite wrap uses core systems from Navigator. We have bundled a lot of services and options together to be competitive on pricing.

“Part of this was looking at what made the difference to what the adviser wanted from either a full service or a lite version.”

Donaghy admits the gap between the charges for both types of platform is narrowing.

“Over time, everyone has pre-selected investment options and that will keep costs low,” he says. “Advisers accepted the initial offerings of wraps, but they want more options added, which means the difference between the two types of platforms will narrow.”

Donaghy says eventually the choice will come down to a package of investments being offered against unlimited choice.

AXA product manager David Frost says the company produced a lite version of Summit called Generations.

“We are looking at new investment options for the wrap,” he says.

Frost says if everything is added that advisers want, then somebody has to pay for the additional features. This can either be the platform managers, which have set the average cost at about 200 basis points, or the client.

Alternatively, the platform manager can raise the price of the service, but lite platforms are very competitively priced in the marketplace.

“It is a big enough market to support both lite wraps and full service models,” he says. “And in our experience with Summit, the inflows haven’t changed.”

Rady says the first lite platform offerings were driven by price, but they become more expensive when the options increase.

“The question is how will lite platforms cope with changing investment demands and remain profitable with the same price drivers?”

Rady says the advisers want a platform for administration and for advice, but will the investor benefit?

“The key is to add value to the investor at a normal price.”

Frost says there is a position for both, with the option of full service or limited options. “If the client wants the administration option to meet the compliance of a super fund, then they will go for the full service model,” he says.

Burke says AMP has faced pressure on fees. “We did pass on a fee reduction to advisers as we reduced our costs from fund managers,” she says. “But if you have scale on the platform, then that helps provide competitive fees and these can also be achieved by efficiencies.”

Donaghy says the demand for a more flexible way of reporting and straight through processing mean the lite wrap is getting away from the simple platform and becoming a full service model.

“The pressure for funds to be added to the platform is continuing,” he says.