Savers missing out on higher investment returns |
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| Strategic Finance | |
| Written by Paul Williams | |
| Thursday, 02 September 2010 | |
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New research shows IFAs increasingly turning to wrap platforms, but warns of low returns on cash elements. Financial advisers are increasingly using wrap platforms to manage their clients’ funds, according to new research from Investec Bank, with almost two thirds (63%) of investment focused IFAs surveyed using wrap platforms. Returns on cash deposits held within wrap platforms can however be very low, the investment bank warns. Over a third (38%) of those using platforms cite them as the most appropriate portfolio management tool for their clients. Just over a third (35%) use wrap platforms to consolidate clients’ portfolios and one in five (22%) say that it frees up time to spend on asset allocation and investment management. However, Investec’s survey also shows that the returns on cash deposits held within wrap platforms are often very low. The research reveals that on average they are receiving a return of 1.30% on cash deposits invested through a wrap platform, with more than a quarter (27%) seeing returns of just 0.5% or less for their clients’ cash. Wrap accounts are a type of investment platform which enable investors to consolidate their portfolio under one administrative umbrella. Investors are able to invest in different managed funds or direct investments through a platform (with online access and transacting on the account centralised and consolidated reporting provided) rather than holding many separate investments with different fund managers and brokers. Investec warns that savers with larger deposits could be missing out on higher returns on the cash element of their investment portfolios because IFAs are using products on wrap platforms paying non-competitive rates of return. While the majority of IFAs surveyed said that up to 10% of their clients’ wrapped assets are currently in cash, 5% said that they had clients with over half of their wrapped assets in cash. Lionel Ross, at Investec Bank commented, "Although wrap platforms are relatively new in the UK, there are a number of providers offering a wide range of investment options and they are a great tool for IFAs looking to manage their clients’ funds more efficiently." He warned that one aspect which is often overlooked is cash management and the returns paid on the cash deposits held within an investment portfolio. "Our research highlights how many investors are earning uncompetitive rates of return on their cash deposits and demonstrates the importance for investors with larger deposits to ensure that their wrapped cash is earning a fair return," said Ross. "Wrap platforms are likely to continue to have a major role among IFAs as the industry moves towards full financial planning. They enable advisers to quickly assess a client’s assets and as a result spend more time with them, which can only be beneficial. However, it’s important that IFAs consider the returns that their clients will receive on cash wrapped in a platform," Ross advised. Fraser Donaldson, funds insight analyst at Defaqto commented, "While platforms are predominantly perceived as a service to enhance investment processes it is often forgotten that cash is a valid asset class. "If an adviser feels that his client should have a proportion of his assets in cash on the platform, they should expect to receive a competitive rate of interest on that investment. Particularly if that cash position may be maintained for a period of time," he said. "Receiving a competitive rate of interest in an active trading account however is perhaps not such a priority, but would nonetheless be welcomed," Donaldson concluded. Typically, IFAs use two to three different wrap platforms to manage their clients’ portfolios. Around one in five (19%) use just one and 15% say that they use four or more wrap platforms. Of those surveyed, the four most popular wrap platforms named were Skandia (41%), Cofunds (40%), Fidelity (30%) and Transact (22%). |
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