Grand master of wrap writes a song for Europe

Originating in the US, and considered by the Americans as too sophisticated for the UK, the wrap account market gears up to spread its influence into Continental Europe. Roxane McMeeken reports. Wrap accounts are set to become the hottest new form of fund distribution for Europe’s wealthy investors. Originally a US phenomenon, outside the country they hold E70bn. But according to Boston-based research firm Cerulli Associates, this will swell to E200bn in four years. Leading the charge in Europe are Citigroup’s Salomon Smith Barney (SSB) and UBS. These hybrid animals are also known as “separately managed accounts” or “wrap fee programmes”. Cerulli says they combine client profiling, asset allocation and unbundled asset-based fees. Unbundled fees are a key issue in the wrap account market, according to Cerulli. “Intermediaries will increasingly seek compensation through the use of unbundled advisory fees – asset-based charges identified as portfolio review fees and calculated by exacting a percentage of a client’s total assets under management.” SSB has already “wrapped” E2bn outside the US, closely followed by UBS. Morgan Stanley, through its UK acquisition of Quilter, has gained access to the British mass affluent and is establishing beachheads on the Continent. Merrill Lynch received a set-back through its ill-fated wealth management alliance with HSBC, but remains a contender. The latest US wrap player to enter Europe is the E85bn Florida-based giant Raymond James, currently on the lookout for third party funds to distribute from London. The firm has already signed a deal with multi-manager Attica Asset Management. The firm’s view is that fully fledged wrap accounts are still too sophisticated for the UK and simpler multi-manager accounts can be used as an introduction. Chief executive Kevin Carreno has been investigating the UK market for two and half years. As a result, Raymond James has already attracted E475m. Mr Carreno expects to hit E1.6bn over the next 12 months. Expansion to Continental Europe will be a “natural progression”, focusing on Germany, France, Switzerland, Spain and Italy. Raymond Jones will do all its business through financial advisers, offering them everything from access to funds through to full-scale outsourcing of portfolio management, performance monitoring and reporting.