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Lee Robertson: The trouble with wealth managers and advice

I doubt whether adding advice services will help larger wealth management players ultimately maintain their margins

Lee Robertson

The most recent Financial Times Private Client Wealth Management Survey, which is always eagerly anticipated at IQ Towers, makes for particularly interesting reading this year.

The long-term bull market and the effective devaluation of sterling post the EU referendum means virtually all the participants are posting very creditable numbers and all appear to have grown considerably in terms of assets under management.

The larger managers continue to dominate the pack in terms of assets under management but there are many boutiques represented who continue to thrive and prosper among these larger players.

What I find particularly interesting is just how many of the larger players are now seeking to add advice and wealth planning to their core offerings where they have not provided these previously.

Slightly tongue-in-cheek I could ask why they currently describe themselves as wealth managers as opposed to asset or investment managers, but that is probably a discussion for another day.

However, the point is that the FT suggests the average all-in fee charged by UK wealth managers and advisers is in the region of 2.24 per cent.

This appears to be the case whether the organisations utilise passive or active funds, and whether they currently provide real advice or not.

I suspect this is why so many of the organisations which did not previously offer the expensive-to-deliver advice element of wealth management now realise they must do so. They are seeking to add value to their offering and maintain fee levels.

Private investors are becoming, quite rightly, much more interested in what they pay for their money to be managed, advised upon and invested.

The continual rise of passive investment funds, as well as a focus on fees and charges, and a real and sustained regulatory drive for transparency are combining to lead to margin compression across the sector.

All the while organisations are still having to budget for an ever increasing regulatory burden (Mifid II anyone?).

Compounding these problems for organisations are low interest rates and bond yields, and a real difficulty in finding yield currently.

Do I personally believe that by moving to add advice into the mix, larger players will maintain their margins?

Probably not unless they put real effort into training their staff in the rigours of this important discipline. Financial planning and wealth advice done correctly is expensive to deliver and I suspect they may be underestimating the time and cost to do it as it should be done.

All this being said I approve of this general shift towards adding  advice to investment management. It sets the context for longer-term financial decisions and when done right definitely leads to better outcomes for investors.

However, if the primary motivation is just to protect margins and to look like they are doing more but not putting the required effort in, I predict trouble ahead.

Lee Robertson is chief executive of Investment Quorum

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. “All this being said I approve of this general shift towards adding advice to investment management.”

    The same is true looked at from the other end of the tunnel, i.e. adding investment management to advice. Slightly tongue-in-cheek I could ask why advisers currently describe themselves as wealth managers as opposed to financial planners or financial managers, but that is probably a discussion for another day.

    I suspect this is why so many of the organisations which did not previously offer the expensive-to-deliver investment management element of wealth management now realise they must do so. They are seeking to add value to their offering and maintain fee levels.

    Perhaps the complete service is what all clients are seeking at the end of the day?

    • Thanks for taking the time to read and reply. All fair points well made. It obviously depends on which end of the value chain you are viewing this same trend but hopefully all leading to better outcomes for clients.

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