In many cases, the investment instruments purchased can be held on the investment platform in a range of tax-efficient wrappers such as pensions, ISAs or investment bonds.
The platform offers the investor the opportunity to select a range of funds, open-ended investment companies, investment trusts, exchange-traded funds or individual equities to put into the various wrapper accounts.
As such, platforms are better described as services rather than products. They facilitate the management of investment accounts at a reasonable cost.
Fund supermarkets tend to only offer funds and will seek to use size to negotiate preferential rates on these funds from fund managers - what we call super-clean fund charges.
Wraps sell their services on the functionality of the service and usually offer a wider range of investments other than funds. Some full service wraps even offer direct equities from various exchanges around the world along with a full range of discretionary fund manager options.
On 31 December 2012, the investment market place was fundamentally changed by the Retail Distribution Review (RDR). The RDR sought to unbundle the charging structures of platforms. This resulted in the differences between wraps and fund supermarkets becoming blurred.
Fund supermarkets have started to offer some of the expanded investment options and functionality of wraps while trying to use their size to negotiate fund discounts. Wraps, in turn, have reduced pricing to compete while still offering improvements in functionality.
Currently, the UK has over 30 different fund supermarket and wrap providers. The market is expected to consolidate over the coming years.