Wealth Management Client Acquisition Costs Rocket in UK

Nick Parmee

5 September 2007

UK-based consultancy Market-Dynamics Research and Consulting has published the results of its study of the cost of acquiring a client into a discretionary investment management service in the UK. The average, fully allocated cost of acquiring a high net worth client with approximately £1 million ($2 million) to invest in a discretionary portfolio has increased from £8,700 in 2004 to £12,200 in 2007. Although client interviews remain the most expensive steps in the process, they only account for 30 per cent of the total new client acquisition costs, according to MDRC. The difference between the most efficient and least efficient firms had also increased. The most efficient firm in the 2007 study had a client acquisition cost of £5,200, while the least efficient firm had a client acquisition cost of over £23,000. This factor of 4.4 cost difference is substantially higher than the 3.5 figure seen in 2004. Size of firm was not an indicator of acquisition costs, with both large and small firms appearing at the top and bottom of the cost range. Unit lead generation costs have more than doubled, unit lead management costs have risen by 76 per cent and the costs of client interviews have risen by 38 per cent. But the costs of the pre-completion administration have fallen by 11 per cent. MDRC thinks this suggests that wealth managers and private banks have been adding resources to their sales and business development activities without achieving a proportionate increase in productivity. Higher salaries account for 47 per cent of the unit cost increase, but the balance of 53 per cent is an indication of this reduction in sales productivity. Richard Williams, MDRC’s managing director, said: “Although some of these costs are associated with increased regulatory activity, most of the increase is in the general areas of marketing and business development, activities where the wealth management sector has tended to under-spend and where an increase in expenditure usually translates directly into new clients and assets under management. From our discussions with the UK’s wealth managers, we found that the increase in business development resource was driven by the expected growth in the size of the market rather than an assessment of the real needs of the business.”