Wrap proposition removes product choice dictating remuneration fees

The onset of full wrap propositions will remove commission differences between products, leading to a dramatic increase in sales of investment trusts, the industry believes.

Products bought from su-permarkets such as Cofunds and Fidelity FundsNetwork are currently charged in the same way as if they were bought di-rectly from providers, with in-termediary commissions paid accordingly. As such, invest-ment trusts, which do not pay commissions or levy enough in annual charges to pay for su-permarket inclusion, are large-ly not featured.

With the advent of full wrap propositions, however, fees will be charged at wrap rather than product level, with intermedi-aries agreeing individual ad-visory fees. This would mean product choice no longer dic-tates remuneration.

Rob Fisher, FundsNetwork marketing director, said that with the addition of life and pensions wrappers, Cofunds and FundsNetwork have now become platforms and the next stage in their development will be to become a full, open ar-chitecture wrap proposition.

"To be a true wrap, most opinion suggests the platform would need a cash manage-ment facility," he said. "That means there would be the option for the customer and adviser to agree charging un-related to the underlying in-vestments and that could be tiered depending on the level of advice given."

As such, clients would pay to have their accounts serviced and what goes on within those accounts would be directly reflected in the charge.

This model has already been adopted by Transact and, ac-cording to the wrap's head of sales and marketing Malcolm Murray, it had a pronounced ef-fect on investment trust sales.

He said: "When Transact launched five years ago, we found that, because the platform dealt net of commissions, invest-ment trusts were put on a level par with unit trusts. That had an immediate effect with increased business for investment trusts."