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IFAs &#39best placed&#39 to target mass-affluent clients, says KPMG

IFAs are most likely to succeed in the wealth management market as banks face serious difficulties in making services for the mass affluent pay, according to research by KPMG.

Its study has found that it costs around £750 a year for an IFA to service a client with assets of £50,000.

This means banks wanting to break into the market will need to generate £1,500 in fees or commission from clients to maintain the expense ratios they are used to.

KPMG says banks will typically target a management expense ratio of up to 50 per cent, which implies an income target of £1,500 a year for each client, which is hard to achieve in later years without churning assets.

It says would-be providers of wealth management services may have to move further upmarket to more affluent investors who will generate enough revenue to meet the servicing costs.

Wealth managers will have to use technology more efficiently to allow clients to be at least partly self-serving, particularly after the first year when their affairs have been put in order. They may have to develop new products that generate annual fee income greater than traditional unit trust or bond products.

Financial services division partner Simon Walker says: “Perhaps the mass affluent are best targeted by self-employed franchised advisers who have lower overheads and profit expectations. Banks may be advised to focus on the upper end of the mass-affluent market.

“Taking 1 per cent as a realistic fee, banks would need to set £75,000 as a minimum entry requirement to break even and £150,000 to meet their normal level of profit expectations.”

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