The relentless increase in the regulation of personal investment arrangements has resulted in an ever-increasing volume of paperwork. As a result, it is increasingly difficult for investors to see the wood for the trees.
A common consequence is that important information is not properly reviewed and the actions required to deliver an improved financial outcome are not taken. Of course, information overload is something that afflicts many aspects of our lives and I think we all crave a mechanism that allows information to be filtered and summarised to facilitate greater transparency. This would provide the ability to make better informed decisions in less time, leaving more time available for those things in life that are more enjoyable.
There is a solution for your investments that has been embraced by many. Although a relatively new concept (our clients have been looked after in this way for the last five years) the answer is to use a ‘wrap’ or investment platform.
Forget about the terminology for a moment. The key message is that this approach provides numerous benefits. It separates the roles of investment administration and investment management. Having chosen an administrator you can be free to move your money between funds and investment managers to ensure that you hold the most suitable investments at any given time. You would usually have over a thousand funds to choose from. A wrap, or platform, works by enabling different types of account (for example, pensions, investment bonds, PEPs, ISAs and unit trusts) to be held in one place so that your portfolio may be managed as a coherent, single entity. You also benefit from the economies of scale because investment charges will tend to reduce proportionately for larger sums.
Most wrap providers will give you online access to view your investments should you wish to, and no doubt you will appreciate the benefit of receiving a single valuation report for all of your investments. Your adviser will also be able to make alterations to your portfolio online so that tactical changes agreed with you may be actioned speedily. This is particularly important given the pace of change in the modern world.
Another advantage is that many of the wraps available incorporate very sophisticated investment analysis tools that enable your adviser to interrogate important data about your portfolio. For example, you may feel that you have achieved diversification by spreading your money across a range of funds, but if the managers of those funds have broadly similar views they could well be purchasing broadly similar underlying investments. In other words, your money may not be as widely spread as you had believed and you could, therefore, be exposed to greater risk than you might have realised.
Aside from helping you to avoid unwanted risks, a good range of investment tools will help to appraise the performance of individual funds held relative to their peer group. For example, if you wanted to have some exposure to Latin American equity markets you would want your money invested in a fund that had been and hopefully remained a consistently better than average fund of that type. If used to its potential, there is no doubt that the ability to monitor and appraise portfolios in much greater detail should result in an improvement in long-term riskadjusted performance.
There are currently 15 wrap providers to choose from in the UK and in aggregate they administer assets in excess of £100 billion. However, the economies of scale required for wraps to be commercially viable are such that many of these offerings will not survive long term, so the selection process should favour the more established arrangements. This is not to say that your money is at risk if the wrap provider does not succeed. Client funds are clearly segregated in custodian arrangements. You would simply have the inconvenience of choosing a new administrator.
If you currently have a range of investments and pensions, each administered by a different institution, you are either spending too much time keeping track of your finances or you are not truly on top of them. There is good reason to reconsider your approach.