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Chris Gilchrist: Wealth management lipstick on a pig

Financial advisers seeking to impress prospective clients have started to describe themselves as wealth managers. Like many fads in the advice business, this is probably relatively harmless but it does bring to mind the Russian proverb about putting lipstick on a pig.

The truth is that wealth management for really wealthy people has been and always will be under- taken by banks. The reason is simple: really wealthy people always have a lot of cash on deposit.

Even if the bank pays them a decent deposit rate, it makes so much from the interest margin on lending that any fees it charges the client are small change. And guess what? They do not actually charge that much in fees – at least not on an ongoing basis.

The number one rule in wealth management as undertaken by banks is – do whatever it takes to keep the client happy and his money on deposit. And the really rich, who do not often become that rich by being stupid, are usually quite capable of wringing fee concessions out of banks for the services they do buy.

The really rich prefer, as they always have, to pay fees on a transactional basis. Banks typically build those fees into the structured products – often bespoke ones – they create for such clients. If their clients did not like this, it would not have required the retail distribution review and all its fee disclosure rules to get them to go somewhere else to get a better deal.

So if IFAs think that by disclosing their “wealth management” fees they will win the admiration and loyalty of the really rich, they should go into the rose-tinted spectacle business.

The bank wealth managers do not have to be independent or whole of market. I doubt they or most of their fat-cat clients give a toss about all that stuff. After all, we all know the rules never really apply to the stinking rich. If you think that is true only in the third world, you have not yet grasped the fact that the City of London is the world’s biggest tax avoidance centre.

The avoidance is contracted out to the sterling offshore centres, which hoover up money and send it to London.

The world of the really rich is far removed from that of UK advisers, bound by UK tax law, constrained by money laundering and shackled by the FSA. If you were stinking rich, why would you want someone in that position to manage your wealth?

No, it would be a big bank with subsidiaries all over the place and the ability to do all kinds of clever things that only banks can do to magically transform money from one form into another.

Of course, there are rich people in the UK who are constrained by UK tax laws – but once they are rich enough they usually find it better for their health to live somewhere else.

This is all by the by. Many of the IFAs calling themselves wealth managers are just trying to justify large fee bills that, oddly enough, are similar to the commission they were taking until recently. I really do think pigs look better without lipstick.

Chris Gilchrist is the joint author of The Process of Financial Planning and editor of The IRS Report


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. Journalists get paid for this tosh?

    Chris as you seem to hold much of your readership in contempt perhaps you should consider a new career – pig farming perhaps?

  2. The saying goes “as happy as a pig in sh…..!!

  3. Couldn’t agree more with your view Chris.

  4. I initially deleted this e-mail update from Citywire without reading it as the title of this piece appeared to be yet another inflammatory load of nonsense from what used to be a respected news agency. Regretfully, my curiosity got the better of me as I retrieved it from my deleted items. Suffice to say, I was correct in the first place. Low news day again Citywire?

  5. Quite so Chris.

    But watch out for the reaction from those suffering from wounded ego and pricked pomposity.

  6. A harsh reality check but tbh I can’t see anything to disagree with here. The IFA core market has always been the moderately wealthy and I see no reason why it is going to change.

  7. The real market for IFAs was the mid to high income earners, that will cease to exist post RDR as those families will not be able to afford the level of fees that it would be necessary to charge, especially for arranging regular premium contracts like monthly pension contributions, unless someone can suggest a way to fund such plans on a “front loaded” basis. OH heaven forfend!!!
    That was outlawed wasn’t it, silly me!

    Baroness Greengross ( seems to believe that the availability of IFA services for small pension pot holders is going to disappear post RDR.

    Newsflash – so will a third of IFAs if not more according to Earnst & Youngs survey

  8. The ambivalent professional 30th January 2012 at 3:34 pm

    Can I ask you Chris to only write something when you have really considered what you are going to say, something I commonly do. Also if you are going to say something then be certain it will contribute something meaningful and balanced. Musing ‘out loud’ does not constitute great writing.

    Your writing appears to suffer from journalistic ‘churning’. I presume we will not see a balanced ‘pro’ piece shortly?

  9. Anonymous @ 3.34

    At least you know who he is as he shows his name which is more than can be said about you.

    You invite him to say ‘what you are going to say, something I commonly do’. Total twaddle.

    Pompous idiocy!

  10. The Ambivalent Professional 30th January 2012 at 4:47 pm

    Mr. Palmer have you considered the irony of the language you use? If you don’t like my opinion then say so calmly and exhibit sufficient self-control to resist the temptation to indulge in a personal character attack whilst apparently ‘channelling’ Toad of Toad Hall.

  11. @Anonymous

    What character and who have I attacked?

    Heaven help us!

  12. What is the point of this article?

    So what if someone wants to call themselves a wealth manager? Who cares? At the end of the day, what most IFAs do is manage someone’s wealth. Whether a bank does it for the really wealthy, big deal.

    Most of what Chris writes is good stuff, but this is just a waste of time. It’s better to focus on your strengths than what others get up to.

  13. UBS, before they put their tail between their legs and decided not to pursue the over crowded platform space, were clear as to their ongoing advisory costs – A member of their senior team openly said that on average their annual “take” for wealth management services across the planet is 1.04% – It was and remains not clear as to what their service delivery was for this but I am pretty sure good advisers are more capable of demonstrating their worth than most banks. The point about deposits is spot on – The difference though, between deposit rate and loan rate is c. 400bps and in my book that is one hell of a TER. Build a robust proposition with a TER of less of than 250bps including an adviser “take” of 100bps and the model is viable and more importantly delivers high value to a client. Have belief in what you do for your client and the banks can’t get near you. Build the relationship to a point where any money en route to investment is not exposed to a bank adviser purely because the client sees you as their trusted servant in these situations. Pigs and lipstick is not the issue. Most clients value the relationship more than anything else and the majority of bank personnel have been historically poor at delivery here – Many apologies for being anonymous – my current role prohibits postings!

  14. Someone who has no idea what bank “Wealth” divisions have been doing for decades? It appears the FSA didn’t have a clue either.

    At the moment they are busy patching great big holes in their sinking ships.

    Disclaimer: No pigs were harmed in any way during the writing of this response.

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