Lim Chung Chun of iFAST Corporation discusses the features and benefits of wrap platforms, and explains why there is so much potential for them to become a bigger part of the wealth management offering.
Date: Mar 2010
Tags: Wrap platform, Fees, Portfolio construction
Wrap platforms are becoming increasingly important in Asia, especially in markets like Singapore and Hong Kong.
This is especially the case in the aftermath of the financial crisis and changes in regulations, said Lim Chung Chun in an interview.
Efficiencies
Given the vast number of financial products available from a wide range of manufacturers, investors need to find ways to more effectively manage their portfolios – either on their own or with the help of a financial adviser, explained Lim.
Platforms are therefore a way for end investors, as well as advisers, to improve the efficiency of their transactions and lower the overall costs, particularly when switching from one investment to another.
Given that the business model of most independent financial advisers involves the client paying a fee based on the percentage of assets under advisory, Lim said this means that the better the client does, the more advisers earn.
And to make that model work efficiently, he said advisers need a platform to wrap the various products.
Post-crisis changes
According to Lim, regulatory and other changes seen in the wake of the financial crisis are suggesting that wrap accounts are likely to become more and more important.
This will have the biggest impact on the bank distribution channel, for which the wrap-platform model is new.
Some banks are starting to see they need to adopt this approach, said Lim, and a few banks have launched their versions of wrap accounts.
Lim said the positive implications of these developments will come from helping to increase the overall adoption rate for wrap accounts.
It could also mean there will be more financial institutions looking to use iFAST’s platform, he added, especially given the time and cost involved with building such a platform internally.
Regulatory influences on fees
Whereas the bulk of the revenue for the banks comes from upfront sales charges, wrap accounts are dependent on the amount of assets under advice, as they take a percentage of assets.
Moving to this model takes some time, but increasingly, regulators as well as investors want to see greater transparency in the way that financial advisers are remunerated, said Lim.
In the UK, for example, Lim said the financial regulator’s review and recommendations on retail distribution has concluded that by the end of 2012 product providers can no longer pay commissions to distributors.
This is a major change, he explained, which means advisers will need to show more clearly that they can segregate their charges from product provider charges.
This will lead to a greater adoption of wrap platforms, forecasted Lim.
It will also influence the thinking of regulators around the world, he added, in terms of greater transparency in overall fees.
