Wrap funds are rebounding

During the past 10 years, fund wraps were embraced by distributors, advisors, and investors. This led financial services providers to make moves that capitalized on the growth opportunity.

Three constituencies have emerged as drivers of growth in the fund wrap segment. Banks found their packaged solutions found fertile ground in the developing branch advice conduits. For independent companies, the stronger retention characteristics of wraps appealed to those with mature books of business where an increasingly smaller percentage of assets were protected by DSC schedules. And, insurance companies populated their solutions with proprietary segregated funds.

Fund wraps claimed 21% of total investment fund assets by mid-2006 and by June 2009 that had risen to 26%. In terms of net flows, fund wraps routinely accounted for two-thirds of every dollar flowing into funds in the 2006-2007 period; although that came to a halt in 2008 as equity markets fell.

But, in the first half of 2009, Investor Economics found there has been new life in inflows for the funds industry as a while, and for fund wraps in particular. The category moved back into positive net flow territory with wraps capturing 41% of industry net flows. This trend suggests pre-assembled advice solutions demonstrated resilience during the most recent bear market, particularly with respect to redemption rates, which remained consistently below those of stand alone funds.

Source: Investor Economics

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.