All for one and one for all investments

You've got an ISA here, a trust there, shares all over and you can't keep tabs on them. Are online 'wrap' accounts the answer? asks Sam Dunn

Tuesday 08 October 2013 21:05

Abbey National unveiled its new logo last week: from now on it will be known simply as Abbey, spelt in ghostly letters against a luminous backdrop. And with the new brand comes a new product, the "wrap" account.

Abbey is not alone in this; other providers - banks and independent financial advisers (IFAs) alike - are gradually latching on to the new big thing in finance.

Wrap accounts do what their name suggests. They roll all your investments into a single online package, and will either manage them for you - sometimes for a fee - or let you do the managing yourself. The big advantage is that you have them all in one place, making it easier to see where you stand financially.

For this reason, wrap accounts will appeal to anyone keen to tidy up investments scattered across the financial services industry. Say, for example, you have an individual savings account (ISA), holdings in a unit trust and an investment trust, shares held with a broker, and a self-invested personal pension (Sipp) - all in the hands of different companies. That's a lot of disparate investments to keep an eye on. How much more manageable it might be if they were bundled together in a single online account.

Once you have done so, you can break down your investments to see how much they are worth - figures are updated daily, in some cases. And when all your assets are in one place, working out your tax return is more straightforward.

Some wrap accounts also offer investment research and let you deal in shares online. You may also be allowed to switch unit trust investments for free.

Wrap fever is beginning to catch on: nine out of 10 IFAs predict the accounts will grow "considerably" in popularity, according to soon-to-be-published research for JP Morgan FundsHub.

However, very few such accounts are currently available in the UK, and what you get is patchy; the services on offer can differ enormously.

IFA Hargreaves Lansdown, wealth manager Seven Investment Management (7IM) and American Express Financial Services Europe (AMFSE) offer wrap accounts for individual savers, while Abbey's product is targeted at IFAs, who in turn are expected to target individuals with assets of at least £250,000. Costs vary considerably but in Australia, where wrap accounts are already established, the typical charge is 2.5 per cent per annum of your total assets for a full management service.

"There are so many different models," says David Moffat, marketing director at JP Morgan FundsHub. "It will take time until fees are pushed down to 1.5 per cent of total assets."

Hargreaves Lansdown uses its Vantage online fund supermarket service as the core element of its wrap account, so the charges are the usual ones for customers of Vantage. Within the account, you can sell shares and deposit the cash in its ISA online, with interest payable from 0.75 up to 3.25 per cent gross, while you decide what to do with the proceeds.

You can keep track of a Sipp as well, although it has to be the Hargreaves Lansdown product. Tom McPhail, the IFA's pensions specialist, says: "This is a financial management package that allows people to view a cross section [of their investments] and see where the risk is."

This insight into asset allocation - between, say, shares, bonds and unit trusts - is the key feature of the wrap account, he says. When you see how your investments are weighted, you can then take appropriate action.

This may involve seeking advice - which you will be charged for - or you can switch between funds yourself. That will involve a degree of investor sophistication, however.

Mr McPhail acknowledges that Hargreaves Lansdown's own wrap account is not all-encompassing. As yet, you can't hold life insurance bond-style products in there, for example. "There are limitations, but it's still a desirable tool for the client," he says.

At 7IM, investors must choose between unit trust or direct share investments only, and are charged accordingly. This works out at 1.4 per cent of total assets for unit trust investments, as well as the cost of unit trust transactions.

In Abbey's case, there will also be a set charge for the service, a percentage depending on the amount you invested.

It's important to remember that you will continue paying management charges on the funds and investments held within all wrap accounts currently available in the UK.

Robert Morse, senior investment adviser at IFA Chase de Vere, says his own firm is launching a wrap account because it makes it easier to advise clients. "We are doing it because it's a huge help to us," he explains. "We can do the job more effectively."

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