"Wrapper" products hold investments in a tax efficient wrapper making them free of income and capital gains tax, and are aimed at trying to stimulate the general public into saving and investing money. Examples of these products (current and historical) include Individual Savings Accounts (ISAs), Child Trust Funds (CTFs), Personal Equity Plans (PEPs) and Self- Invested Person Pensions (SIPPs). See VATFIN5700 for more information on these products.
A wrap account is an arrangement that holds a range of
investments, providing a single point of contact and management for
investors and their agents.
A wrap manager is usually a separate legal entity within a
financial services or insurance group that offers to hold, manage
and administer the whole or part of an individual’s
portfolio. The wrap account itself might typically be an
interest-bearing bank account, with a set of sub- accounts,
allowing payments to be made and received within broad product
silos, allowing the VAT treatment of the service to be analysed.
The wrap manager nominates a third-party discretionary
investment manager and an execution-only broker. The discretionary
investment manager generally offers, or is required by the wrap
manager to offer, nominee account services. It may also offer
custody services, or these may be provided by another entity.
The typical charging structures for wrap products are based
on transaction charges, calculated by reference to the value of
investments within the wrap account (taken as a strong indicator of
activity going through the account), including dividends, interest,
and principal amounts. The VAT liability of a Wrap depends on the
nature of the supplies made and in case of doubt please contact
HMRC.
The simplest form of a wrap account is a “nominee account”. Investors will typically make investments through a bank or building society account or via an Independent Financial Advisor (“IFA”), stockbroker or other type of intermediary. Many of these operate nominee account arrangements. As far as the provider (e.g. the fund manager) is concerned, it receives a purchase instruction registered in the name of a nominee account. The fund manager does not need to have, and usually does not have, a relationship with the underlying investor. The intermediary will receive ongoing reporting / disclosures from the provider, which it will forward (appropriately customised / apportioned) to the underlying investors, of which there may be hundreds, or even thousands.
Funds supermarkets provide a particular form of wrap account.
They provide access to a variety of collective funds managed by
different fund managers. They are like supermarkets in that an
investor is the shopper, the products are the funds, and the
supermarket is the shop. They may offer advice or analytical
decision/fund selection tools or simply provide “execution
only” services.
Fund supermarkets allow investors to purchase fund shares /
units from a variety of fund managers, usually at discounted
prices. Such shares / units may be wrapped within a PEP or ISA, or
held as stand alone investments. The investor has a contractual
relationship with the supermarket, and does not deal direct with
the fund manager. Likewise, fund managers have no knowledge of
individual investors – they simply see net, bulk orders from
the supermarket’s nominee account to sell or buy
shares/units.
Typical services undertaken by the supermarket may
include:
Investors usually pay no fee to the supermarket itself. Instead, the supermarket usually receives commission from the fund manager, which may be taken in the form of a rebate of the management fee. In this case, the “commission” represents a bulk discount for a large nominal investor, and, as such, is not a taxable supply.
