Wraps – an easier way to invest?

Since we last addressed the issue of Wraps, there has been an expansion in the number of companies offering this form of investment, so it is worth revisiting the topic.

Keeping everything neatly together

A wrap, or wrap account, is fundamentally a facility that can bring together all your investments - including shares, bonds, cash, investment trusts, unit trusts and pensions - under one roof. They can also be used to manage various tax wrappers such as Individual Savings Accounts (ISAs), the old Personal Equity Plans (PEPs) and self-invested personal pensions (SIPPs).

This can actually help you complete your tax return, by having all the information you need in one place.

Many systems will calculate capital gains tax liabilities for you.

How do they work?
Wraps are internet based facilities that can give you on-line access to information about all your investments at any time of day or night. In some cases, you can also give instructions in respect of managing your investments, but it is always worth discussing this with your independent financial adviser first.

The main point about wraps is that they make it much easier to have a spread of investments over many managers. Although some of them are managed by insurance companies or fund managers, they are ‘open ended’ in that you can include just about any investments within them, even if they are not provided by the wrap manager. This means that you can split your money between different managers in order to spread your risk, adopting not just a diverse asset allocation strategy, but also allowing you to benefit from the opinions of a range of different fund managers.

Information when and where you want it

How easy is this?
In most cases, your existing investments can be brought within the wrap through re-registration with the fund manager or company (in the case of directly held shares). This means that you do not need to sell and re-purchase your shares in order to include them. There may, however, be cases when you wish to do so, in order to ‘crystallise’ losses and gains, in order to use your capital gains tax allowances for the year efficiently.

Everyone can currently realise a gain of up to £10,100 during the year before having to pay the 18% tax that applies at the moment (this could change in a future budget). So if you purchased some unit trusts for £20,000 a few years ago, and they are now worth £30,000, you could sell and re-purchase them and avoid tax (provided you have realised no other taxable gains during the current tax year).

Can all my investments be included?
Some investments cannot strictly be included within a wrap for technical reasons. For example, old endowment policies or commercial property within a SIPP do not lend themselves to having on-line valuations, so they are treated separately. It is still possible to have them recorded on the system, but you generally have to input the value manually, updating it from time to time.

What does it cost?
Although nothing in life that is worth having is free, the costs associated with wraps are not high and can actually be competitive, because there are cost savings for everyone involved. The fees are normally expressed as a percentage of the funds under management and can include the cost of advice, as well as the usual management fees.

It is important always to seek independent financial advice before making any decision regarding your finances. For further information, please contact SDB Strategic Planners Ltd. The value of investments is not guaranteed; you may get back less than you put in.

NOTHING CONTAINED IN THE ARTICLE SHOULD BE CONSIDERED AS GIVING INDIVIDUAL FINANCIAL ADVICE. PLEASE NOTE THAT THERE MAY BE VARIATIONS FOR THOSE LIVING IN SCOTLAND AND NORTHERN IRELAND. 

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