Fees for financial advice are set to undergo a process of evolution as high net worth clients opt to move away from charges calculated based on their asset levels, towards fixed fee structures.
This was one of the findings from NPG Wealth Management, SEI and Scorpio Partnership’s latest survey of 3,113 investors from around the world, with a net worth of more than $1m (£650,000).
In the UK, a third of HNWs currently pay a percentage fee, based on the assets under advice, but only 31 per cent want to pay this way in the future. Similarly, the usage of transactional charges looks set to drop from 16 per cent of UK HNWs now to 13 per cent in the future.
By contrast, fixed fees look set to rise in popularity, from 20 per cent of what the research deemed the ‘future wealthy’ now, to 23 per cent going forward and time-based fees will experience a similar increase, from 8 to 11 per cent.
Sebastian Dovey, managing partner of Scorpio Partnership, argued that the traditional ‘percentage of assets’ model means that the client is effectively compensating their provider for the value they bring to the relationship, rather than the value they receive.
“Understandably, they want more control and transparency by engaging with fee structures that more closely reflect their engagement with their financial provider,” he added.
Brett Williams, managing director at SEI Wealth Platform, said that if the research trend proves to be true, the big question is whether wealth management firms will be ready. “Some have failed to invest in their technology over the years, meaning that they will be unprepared for the necessary changes that will need to be made to their systems.”
Elsewhere, the study found that while three quarters of the future wealthy feel that their firm offers good value for money, this rises to 79 per cent among the most highly engaged clients - those with over three quarters of their assets with the firm.
Previous research by the three firms suggested that 29 per cent of the UK’s under-40s believe recommendations from their wealth manager have not been in line with their risk tolerance, while 26 per cent felt their investment strategy has not been fully explained to them.
The last survey also showed that wealth management firms have a vital role to play in generating client confidence in their relationship manager.
High net worth individuals in the UK would allocate 30 per cent of their fee to their relationship manager compared to just 23 per cent to the firm, according to the latest survey. Specialists would be given 17 per cent of the fee, while supporting technologies would be allocated 16 per cent.
peter.walker@ft.com
