The RDR’s focus on advisers assessing clients’ attitudes to risks and providing whole-of-market advice, means many have taken the outsourcing route, either through model portfolios on platforms or through traditional discretionary managers in specific risk-targeted/rated portfolios. Some have even opted for bespoke options.
The British Bankers’ Association (BBA), a leading trade body for the banking sector, published a recent report on private banking and wealth management in the UK. The document, entitled ‘A Wealth of Opportunities’, revealed that the UK’s private banks and wealth managers oversee approximately £524bn of assets.
The industry is already established, mainly for high-net-worth individuals, but in the changing regulatory environment post-RDR, the sector is extending more into the retail space.
Findings from the report included responses from high-net-worth investors with a minimum of £1m in investable assets. One of the main issues raised related to cost and the level of fees. The report noted that 70 per cent of these high-net-worth investors felt the level of fees for the services provided was “key” to choosing a private bank or wealth manager, while among 66 per cent of investors investment performance was also an important criteria.
These are also the two main areas where the discretionary sector has come under pressure with its expansion into the retail space, as it can be tricky for investors to find and compare both performance and costs for discretionary services.
With the report also noting that the number of wealth managers declined in 2013 to 119 from 126 the previous year, it seems larger firms are seeking to merge to consolidate market share, although it acknowledges a number of newer firms may be too small to be included in the report’s research.
The amount of choice and the portfolios available mean due diligence remains at the forefront of the adviser’s role when looking to outsource to one of these types of solutions. The popularity of discretionary portfolios, both within the retail space and in the high-net-worth world, looks set to continue, with the BBA report noting that discretionary portfolios account for more than half of all mandate types among wealth managers, reaching 978,500 in 2013.
The report states: “Discretionary portfolios have increased steadily since 2008 and show no signs of reversing this trend. The client will always face the trade-off between paying for advice and taking the time to manage their investments themselves… and the evidence points to the fact that the desire to hand over responsibility to their discretionary wealth manager continues to be apparent. However, there are signs that some firms are considering stepping into the ‘advice gap’, which could prove beneficial for future advisory growth statistics.”
With further regulation likely to come from both Europe and UK regulators, and with the Wealth Management Association currently undertaking a strategic review that includes addressing the issues of retail investors, it seems the move towards discretionary solutions is one that is set to continue.
Nyree Stewart is features editor at Investment Adviser