WMA JOURNAL Working for the Investment Community & their Clients
RETAIL DISTRIBUTION REVIEW
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There was good growth both in individuals paying a fee based on transactions and fees based on time spent (per hour charge) transparent charging structures. There was good growth both in individuals paying a fee based on transactions and fees based on time spent (per hour charge). Almost one in ten individuals are now paying for their advice on a time-spent basis. This shift in charging structures levied by the industry is in line with HNWI preferences identified in past research done by Ledbury, where both transaction fees, or fees based on time spent/advice given, pipped fees based on a percentage of AUM. Interestingly, the most popular fee option identified by HNWIs in this research was a fee based on performance/profit generated, a challenging option which has yet to be taken up widely within the mainstream industry. Although we would argue that it would be a powerful relationship-building tool for wealth managers, binding the fortunes of providers with their clients, and would also allow wealth managers to share in meaningful upside if they are to succeed in managing their clients’ wealth successfully.
Changes in the industry: how has RDR impacted your HNWI clients? While RDR has brought visible change inside wealth managers, it has been much harder to gauge what impact it has had on the industry’s clients, who were supposed to benefit from it. Have high net worth individuals (HNWIs) noticed a difference, and if so, is it positive or negative? Drawing on select findings from our newly published Competitor Landscape 2013 report, Ledbury Research sets out to provide some conclusive answers. Some of the results will give the wealth management industry and its regulators pause for thought. 14 WMA JOURNAL
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t has been hard to walk more than a few paces within a wealth management office recently without hearing references to RDR or seeing the impact that it has had. While the results on the industry are becoming increasingly clear, what has been much less discernible is the impact RDR has had on clients, who the industry relies on. Feeling it in the pocket The first area we explore is what changes HNWIs have seen when it comes to the fees that they pay in the wake of RDR. For this, we drew on research conducted early in 2013 among 200 UK HNWIs with investable assets
of £1m+. On average, clients have seen a 7% increase in fee levels. The increases are, however, by no means uniform. They have been shouldered by a relatively small number of individuals, some of whom have seen fairly material increase. The majority of HNWIs report no change. (Chart 1). In the same research, we also asked HNWIs how they were charged for financial advice before and after RDR to identify changes in the charging patterns. Here again, there were noticeable changes, with a growing move away from the common fee structure based on a percentage of invested funds and a corresponding move towards more www.thewma.co.uk
Do HNWIs value the advice that they are given? Fees are, of course, just one consideration that HNWIs take into account when evaluating their wealth management service. What is much more important is the quality of advice that they provide. So how is the industry doing in this regard? Our large-scale annual benchmark of 500 managed clients with at least £500,000 in investable assets conducted at the end of 2012 provides some indication of the path and progress of the industry as it made final preparation for RDR. Worryingly, the overall picture when it comes to the quality of perceived advice remains very similar to what it was the previous year, which means that RDR has had very little impact (Chart 2). As an industry, there is certainly lots of room for improvement in this vital area, with one-inthree clients only marginally impressed when it comes to the quality of advice, and one-in-ten www.thewma.co.uk
Chart 1: Source: Ledbury Research Millionaires Omnibus Q1 2013
Chart 2: Source: Ledbury Research Wealth Management Benchmark 2013
being unimpressed. There is real upside from getting this right. With clients who are happier with the quality of advice typically placing a larger share of wallet with their provider. A total of 69% of those who felt they received good advice had more than half of their wealth being managed by the provider in question. Stuart Rutherford Ledbury Research Ledbury Research is a specialist agency to businesses who want to understand
and engage with HNWIs and has recently published their Competitor Landscape report which examines the changes in the wealth management industry over the past year. The report leverages Ledbury’s unique grasp of competitors built up from conducting both consumer and industry research. It provides real intelligence for providers looking to pinpoint client segments, exploit competitor vulnerabilities or increase their own share of wallet. WMA JOURNAL 15
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