Join our investing community

Fantastic New WRAP product

Discussion in 'General Investing Discussion' started by Young Gun, 5th Sep, 2008.

  1. Young Gun

    Young Gun Guest

    Before I start I’m an AMP advisor, but I assure you I’m as unbiased as anyone else, but if I see something good I’ll rave about it.

    It’s not often that I get to say that AMP is a market leader and innovative, but finally they’ve come out with something that’s different to the rest and I think will blow the competition out of the water, until they all jump on board.

    What AMP is about to release is frankly the best platform I’ve seen and its options will drive real change amongst the other providers out there.

    AMP is about to release a new WRAP platform called “AMP Personalised Portfolio”, its targeted at investment clients and SMSF’s with funds above $100,000. (it’s not yet available to retail super clients or pension clients but I’d imagine in the next 12 months it will be).

    If you know anything about WRAP platforms you’ll know that they all operate in the same manner and charge in the same way. They are the preferred product for financial advisors who have clients who wish to invest in a diverse portfolio of managed funds and/or direct shares. They enable us to easily charge our fee and provide advice using a non-restrictive range of investment options.

    The other providers out there in this space are Macquarie Investment service, MasterKey Custom, Asgard, BT and a few others. When you look at these services they are all pretty much the same, they offer the same services they just charge slightly different and have slightly different structures and technology that runs them behind the scene.

    What makes the AMP Personalised Portfolio stand out is they’ve identified the following problems (see below) about Australian managed funds and Direct shares and have come out with a very good solution.

    • When you in invest in a Australian share fund, you invest in the history of that fund. As such you inherit Capital gains and CGT which as a new investor is tax inefficient and for those who borrow to invest may eliminate the benefits of gearing.

    • When you have a small balance and you wish to invest directly in Australian shares, it is a costly exercise in terms of brokerage and the fees an advisor needs to charge to cover the administrative burden. In terms of diversification you are limited as the suggest minimum size of a holding would be $10K - $20K each which means at a minimum you need $100K to $200K to get a well diversified portfolio.

    • In addition the problem then is who picks the shares, The client, the advisor or a broker? So does the client or the advisor have the skills to run an actively managed portfolio of shares, probably not, so you need to use a full service broker. A fully service broker will charge $75 - $100 per trade as a minimum and on a balance of less than $500K will review your portfolio at best every 6 months but generally once a year if you request it.

    So what has AMP come up with? well instead of offering Australian Share funds they offer a selection of SMA (separately managed account) managers instead (along with the ability to hold your own direct shares).

    What’s a SMA? Well they’ve been around for a while you just might not have heard about them as they are generally only offered to those with serious amounts of cash, corporate’s and very high net worth clients. They are essentially a portfolio of shares that you are the direct owner of, but actively managed by your own broker who monitors it on a daily basis, buying and selling when they believe it’s appropriate and managing all the corporate actions on your behalf. SMAs generally are quite expensive and as such you historically have needed to have a lot of money to make it cost effective.

    So what AMP offers is a range of about 15 SMA managers to choose from, with a suggested minimum of $50,000 each. Each SMA has a different style (growth, income, small cap, index, resource etc). management fees range from 1% to 0.1%! And the cost for these mangers to buy shares on your behalf is 0.31% that’s cheaper than commsec! This enables them to trade parcels of shares as small as $300 without worrying about brokerage. As the beneficial owner of the shares you get the dividends as they are paid, the full amount of franking credits and the ability to transfer these shares to another broker, wrap provider, your personal holdings without tax consequences. In addition if you switch SMA managers you can transfer in the similar holdings and only sell the holdings that are different, further increasing the tax benefits.

    What are the fees

    Platform fee = 1st $100,000 0.9225%, next 150K 0.7175%, next 500K 0.41% next 2.25M 0.205%, over 3 M 0%.

    Management fee = depends on investment option 0.1% to 1.43%(1.43% that’s not an SMA fee that’s for an Int. MF) + performance fee of X%

    Advisor fee = negotiate with your advisor.

    Contribution fee = up to 5.12% but should be 0% if your advisor isn’t a bastard.

    I’d imagine the average total fee would range between 1.9% to 2.5% depending on account balance.

    Its currently only available through AMP & Hillross advisors, but in the next 6 – 12 months it will be rebadged be available to other dealer groups and non-aligned advisors. At this stage not available to DIY investors and you’ll have to go through an advisor to get one.

    Why it will be good for a DIY investor who doesn’t know a lot about shares. Allows you to have a actively managed portfolio of shares at a very low cost. You’re the ultimate owner of the shares and at any stage you want to walk away from the platform and hold onto your shares you can by simply transferring them to issuer sponsored.

    It kicks ass can’t wait to recommend it
  2. ashwright

    ashwright Well-Known Member

    30th Nov, 2007
    Brisbane, Qld
    I started looking into SMAs a little while ago, for the reasons you mentioned above. I like the fact it is managed, yet you do not inherit tax issues like a managed fund.
    The problem is there are not too many providers for SMAs, the product you have talked about from AMP sounds quite interesting, I hope other providers provide a similar product.
    Last edited by a moderator: 5th Sep, 2008
  3. AsxBroker

    AsxBroker Well-Known Member

    8th Sep, 2007
    Sydney, NSW
    Hi YoungGun,

    Sounds interesting that AMP have finally put together their own platform (re-inventing the wheel perhaps?). Maybe they were bored with the re-badged version of Asgard (WealthView and PortfolioCare for AMP and Hillross respectively).

    SMA's are very popular in the US, for some reason they just haven't caught on in Australia. Merrill Lynch/BlackRock tried it and didn't really take off, I think CommBank have been able to do it ok...The AMP Group has larger client base than Merrill Lynch/BlackRock so it'll probably be done very successfully by the group.

    AMP Personalised Portfolio "Platform fee = 1st $100,000 0.9225%, next 150K 0.7175%, next 500K 0.41% next 2.25M 0.205%, over 3 M 0%."

    Asgard eWrap "Platform fee = 1st $100,000 0.82%, next $150,000 0.615%, next $500,000 0.3075% next $2.25m 0.1025%, over 3 M 0%."

    Those pricing bandings are identical! That's a massive coincidence.

    In relation to who picks the investments, that's where the financial planner usually picks stocks/managed funds which are supposed to outperform according to research houses. If an SMA is going to be managed by an external manager does this mean the adviser is going to charge less as they aren't stock/managed fund picking? I would believe it when I see it ;)

    1.9% to 2.5% pa is starting to get pricey for direct equities (yes, I know it pays for a platform and an SMA manager). I think most people will quickly realise that their accountant could set up a SMSF and potentially hire the SMA direct and shave those platform and adviser fees off pretty quickly.

    Personally I wouldn't be complaining if I inherited capital gains, certainly capital gains is more tax efficient than distributions due to the 50% CG discount available. Vanguard is a good example, they show the tax implications of constant turnover which results in buying and selling in under 12 months being distributed as Income which is tax assessable rather than compounding the growth in a more tax efficient manner (Capital Gains).

    Many holders of Australian share funds are going to be in for a nasty shock as their funds have lost money and also made large distributions which are liable for tax assessment (you'd rather have left the money in the fund, not be forced to pay tax and not have as big a loss surely?). 90% of gains are in asset allocation and the other 10% in Alpha.

    I'll be keen to read the PDS in finer detail when it is available.


  4. Young Gun

    Young Gun Guest

    in the presentation I went to, they said that it was their intention to stop using the rebadged asgard platform.

    They also went into the blackrock platform and how good that is, it has just died because it hasn't been supported by advisors. As Amp is much larger it will get greater support than most.

    I think the fee of upto 2.5% I mentioned was a bit high, it will most likely be closer to 1.9% (that includes an advisor fee of 0.44%).

    If you compare the fees to a Wholesale Australian MF with another wrap provider the fees would be very similar, if not cheaper with the AMP product.

    What I think AMP is trying to do is capture the low value SMSF market, funds with less than $300K. above this your could potentially do it yourself cheaper.