Wealthy investors are increasingly aware of how their financial advisors and wealth managers are remunerated and are more likely to shop around when considering their financial options, according to Pershing,the financial services firm that is part of New York-listed BNY Mellon.
Wealthy investors are increasingly aware of how their financial advisors and wealth managers are remunerated and are more likely to shop around when considering their financial options following the implementation of the Retail Distribution Review last year, according to Pershing, the financial services firm that is part of New York-listed BNY Mellon.
The research, Brave New World: An Investor Perspective of Wealth Management Services in a Retail Distribution Review World, revealed that the RDR has had a somewhat positive impact on investors’ views of the financial advice industry, with 42 per cent of respondents saying it has become easier to understand how they pay for financial advice and services, while 37 per cent said it was easier to compare fees.
However, the changes have prompted investors to shop around, with 22 per cent having considered changing or starting a new relationship with a financial advisor, rising to 34 per cent for the under 45 age group. Meanwhile, 77 per cent of respondents said that they had a clear understanding of how their advisor or provider is remunerated and 75 per cent believe that their main advisor or provider offers value for money.
The survey, conducted by Scorpio Partnership, interviewed 1,000 respondents via an online questionnaire in November 2013.
“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,” said Kevin Bonar, chief executive of Pershing.
“These sensitivities need to be much better understood by UK financial advisors 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 advisors and wealth managers must have a proactive communication strategy to position the benefits of their offering,” he added.
Findings revealed that 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, with less than 20 per cent of respondents indicating a preference for fees based on assets under management.
The survey showed that different age groups also have different fee preferences, with wealthy individuals in the 45 to 59 age group showing a strong preference (34 per cent) for fixed fees.
Meanwhile, among younger investors the trend was less strong with transaction or project-based fees the most popular at 26 per cent.
The survey also found that 49 per cent of the survey’s respondents identified themselves as self-directed investors, which Pershing believes reflects a “huge potential opportunity” for advisors and wealth managers with a flexible approach to charging.
“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,” said Bonar.