Wraps and platforms

Not every investment adviser builds a portfolio from scratch for each client. Some use a platform instead.

Wraps and platforms are technology-based advisory tools. They are already standardised and ready for execution, built around model portfolios that an investor can simply buy into.

A client can use the platform directly. Or an adviser can use it on the client's behalf, and then track how the client's money is doing across several products at once, from one screen.

This is one of three ways the workbook describes for delivering financial advice, alongside fee-only planning and execution-only distribution. Wraps and platforms sit closer to execution, but with technology doing much of the work a human adviser would otherwise do by hand.

The workbook lists 3 business models for delivering financial advice: fee-only advisers, execution-only services, and wraps and platforms. A wrap or platform offers its financial products as model portfolios, standardised baskets that many investors can buy into without a bespoke plan being built for each one.

The fee mechanism runs two ways. The platform can charge the client a fee and share it with the adviser who executes transactions through the platform. Or the platform can let the adviser use it to reach clients and sell financial advice, again charging a fee that is shared with the platform provider. Either way, the client, the adviser and the platform all sit in the same fee chain, and clients can log in and see how their portfolio is performing.

This differs from the execution-only aggregation model, where an aggregating entity shortlists products and shares revenue with its distributor associates. Wraps and platforms are built around model portfolios and adviser-facing monitoring tools, rather than around a menu of products for distributors to sell.

Illustrative fee split.

An adviser signs up with a wrap platform offering 5 standardised model portfolios. A client invests Rs 20,00,000 through the platform into one of them.

The platform charges the client a 0.5% annual platform fee, Rs 10,000 a year on this investment, and shares 40% of that, Rs 4,000, with the adviser who executes and monitors the account. The adviser does not need to build or rebalance the portfolio herself; the platform's model does that, and she can review it, and the client's other holdings, from one dashboard.

If the client later prefers to log in and manage the model portfolio directly, without going through the adviser, the same platform allows that too. Clients as well as advisers can use these platforms to execute transactions.

Chapter 1 (Introduction to Personal Financial Planning), section 1.6 (Financial advisory and execution), item (c) Wraps and Platforms, listed alongside (a) fee-only advisers and (b) execution-only services as the three business models for delivering financial advice. Expect a question distinguishing this model from the other two.

• Wraps and platforms are not the same as execution-only aggregation. Aggregation is about a menu of products from multiple distributors; wraps and platforms are about standardised model portfolios and shared monitoring tools.
• The fee can be shared two ways — platform-to-adviser for executing transactions, or platform-to-adviser for reaching clients through it — the workbook describes both directions.
• A client can use the platform without an adviser at all, or an adviser can use it on the client's behalf — the model does not require an intermediary the way execution-only aggregation does.