The distinction between the investment structures of wraps and master trusts has a number of implications, including:
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- how fees and other deductions are made
- unit pricing of underlying investments
- application of tax.
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How the features compare
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The 'bells and whistles' added to wraps and master trusts, such as reporting tools, investment options and customer support, often aim to match a typical client's needs and your service models.
Wraps generally provide you with more features, as your typical wrap client will likely hold a mix of managed funds and direct shares. Wraps also provide comprehensive performance and tax management reporting tools to enable you to provide a value added service to high-touch clients.
Conversely, master trusts provide features to support a client base with lower servicing and simpler investment needs. In this way, the administrator of the master trust platform will often provide more customer support services, such as call centre support, educational newsletters and seminars. Master trusts also feature a standard set of business and client reporting tools.
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Four ways to help you find the right solution
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There are four common drivers that can be used to help you determine the best fit for your client:
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1. Complexity of investment needs
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What type of investments are you recommending to your client? Are they looking to invest in direct shares or managed funds? What is the size of your clients' portfolios and how savvy are they with their investments: Additionally, how complex will their needs become as they move towards retirement?
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2. Tax efficiency
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Will your clients' investments generate tax credits, and are these clients in a position to benefit from a tax optimisation strategy? How long is their investment horizen and do they have a high propensity to change investment strategy?
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3. Level of client service
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What value does each client represent to your business, and do you have the right resources to service your high and low-touch clients?
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4. Involvement in portfolio construction
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What level of involvement do you have when building and managing your clients' portfolios? Do you prefer using model portfolios or working with brokers to actively manage a basket of direct shares?
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What does this mean for an adviser's business?
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Depending on how these four drivers apply to your business, you may find a need to use a wrap and master trust, or just one of these platform solutions.
Generally, full-service wraps become an efficient solution for meeting your financial planning needs as these four drivers become more relevant to your business. Vice versa, master trusts provide an efficient solution for meeting the needs of low-touch clients with simpler investment needs.
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