Q. As I hold my investments with a number of providers I am looking to consolidate and transfer the money held in the plans to a ‘wrap platform’. I know you have written about this in the past, so whilst I have a good idea about the benefits, what costs are involved?
Note: click here and here to see previous articles.
A. You are right in saying there are benefits to using a wrap company to help administer your investments.
The first thing to say is that the purpose of the wrap is to provide you with administration services, not investment advice or services. However, you will be able to choose where to invest your money once it has been transferred to the platform.
For example, if you transfer money from a personal pension you could ensure that when the money is received by the wrap it is held in cash until you instruct where the money should be invested. You will normally have access to a number of funds from different providers/investment companies, however you should check with the wrap company in advance as not all wrap providers are created equal and some may restrict where and how your money can be invested.
If you are organising this through an adviser you should ask them why they have chosen the particular wrap they are recommending. At the time of writing there are about a dozen companies in the wrap market but expect this to change as it is an expanding market.
Onto the costs (eventually!).
When you first invest your money (whether transferred or new money invested) the wrap company may levy an initial charge of, say, 0.5% of the amount invested. Some wrap providers do not make an initial charge(obviously it makes sense to check that the service they are offering compares favourably to other wrap providers that do levy the initial charge).
The next cost to consider is the ongoing annual charge for the wrap. This may be in the 0.35 – 0.6% range, depending on how much money you have invested.
The next cost to consider is the funds your money is invested in. Outside a wrap structure you could pay 5% in initial costs. Within the wrap environment you could pay as little as 0%. This is because the wrap company negotiate (or sometimes insist on) reduced charges with the investment companies. In this case, you would only have the initial charge to pay to the wrap provider.
You would then pay the annual charges on the funds where your money is invested. This can range from 0.1 – 1.5% pa on average.
The last charge is the annual fee that you and your adviser agree for ongoing services. This will usually fall in the 0.5 – 1% pa range. The good news with this approach is that you can see how much the adviser is charging you (as it’s totally transparent) and you can decide if what your adviser is offering you each year is worth the fee.
In our experience clients much prefer this ‘fee for service’ way of working as opposed to the old financial services commision model.
