Are high-net-worth clients getting harder to hook?

John Lappin

A recent Deloitte research paper on the RDR suggests that advisers may need to cut costs substantially to enable them to reach more of the mass market.

On first reading, this message will not make investment advisers very happy. They are scarred by the battle to comply with the RDR and will not be happy to hear that, having just about got their businesses into the sort of shape that the FSA/FCA has been demanding, they now might have to cut what they are charging.

The central premise from Deloitte is that advisers’ costs for servicing clients annually are around £1,000. Using this figure, the consultancy says this will drive advisers to focus on those investors with assets of more than £200k and there are not enough of these clients to go round.

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Reducing service costs to £500 will allow advisers to profitably serve clients with less than £100k.

Before advisers get up in arms about yet more analysis about their businesses which they may feel does not equate with reality or certainly their own reality, maybe they need to pause for thought.

My discussions with advisers have seen them broadly divide into three camps when it comes to the amounts of assets they will advise on. Some are blunt and say “We will not countenance advising under X amount”, and on several occasions I have been told this amounts to at least £100,000 or £150,000.

Others are adamant that they won’t turn clients away – even low value ones, while others suggest their respective segmentation exercises are still to wash through the system.

This probably does all add to a messy reality. But is Deloitte’s suggestion really so bad? Certainly, I have always wondered in these columns whether once advisers get a grip on their new business model, their costs and their RDR client relationships, that it then might be time to consider how to drive efficiencies that could see advisers service more clients with lower levels of investable assets.

From a broad policy perspective, there is risk that if advisers only service Upper Middle Britain, they could become viewed as irrelevant in the big debates about savings and investing. But perhaps it makes business sense, too.

For those investment advisers who are suffering indigestion at Deloitte’s suggestion and worry that, if they bring down servicing costs, it will also mean they have to work twice as hard to service perhaps double the number of clients, I suggest they talk to David Norman of TCF Investment.

He can put together a very challenging case for why charging clients with fewer assets more, and those with more assets less, may not actually match the rather extraordinary savings you can bring for those higher net worths in terms of tax and financial planning.