Tue, 15/04/2014 - 06:30
Investors are increasingly aware of how their financial advisers and wealth managers are remunerated and are more likely to shop around when considering their options, according to a survey from Pershing.
The research, Brave New World: An investor perspective of wealth management services in a Retail Distribution Review (RDR) world, showed that RDR has had a positive impact on investors’ views of the financial advice industry.
Forty-two per cent of all respondents think it has become easier to understand how they pay for financial advice and services, and 37 per cent say it is easier to compare fees from different advisers or execution-only providers.
However, the changes have prompted investors to shop around, with 22 per cent having considered changing or starting a new relationship with a financial adviser. This figure rises to 34 per cent for the under 45 age group. Seventy-seven percent of respondents say they have a clear understanding of how their adviser or provider is remunerated and 75 per cent believe that their main adviser or provider offers value for money.
“The unbundling of fees has helped investors to better understand remuneration, but the subject of price competition is still a complex issue. Different clients have different perceptions of value and different fee preferences,” says Kevin Bonar, chief executive officer of Pershing Limited. “These sensitivities need to be much better understood by UK financial advisers and wealth managers if they want to deliver the right level of service to different client groups at an acceptable fee level. To ensure client retention financial advisers and wealth managers must have a proactive communication strategy to position the benefits of their offering.”
While the financial advice and wealth management industry tends to charge fees based on a percentage of assets under management, the UK’s wealthy prefer greater certainty about the total amount they will be paying. Across the entire survey base, less than 20 per cent of respondents indicated a preference for fees based on assets under management.
Different age groups also have different fee preferences. Wealthy individuals in the 45 to 59 age group, perhaps the group most familiar with the wealth management industry, show a strong preference (34 per cent) for fixed fees. Among younger investors the trend was less strong with transaction or project-based fees the most popular at 26 per cent. The younger wealthy generation is most welcoming of the broad sweep of changes and values professionally qualified advisers, clarity on services provided and transparency about fees as much as the removal of commission from investments.
Forty-nine per cent of the survey’s 1,000 respondents identified themselves as self-directed investors, reflecting a huge potential opportunity for advisers and wealth managers with a flexible approach to charging. These investors are value sensitive, seeking efficient wealth management relationships.
Bonar says: “There is an opportunity for wealth managers to engage self-directed investors with a high-value, digitally-enabled service. Being more open-minded on fees may well be the way to match their offering to the mass affluent segment as well and ensure it remains profitable for their business. Many financial advice firms will be more than willing to welcome this up-and-coming group of wealthy clients.”
The survey was conducted by Scorpio Partnership via an online questionnaire in November 2013. The report is a follow-up study to Through the Looking Glass: An executive perspective of UK wealth management in an RDR world which Pershing published in April 2013 and surveyed wealth managers.
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