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Wealth management costs static post-RDR despite falling asset management fees

Wealth management costs have remained relatively flat since the RDR despite a substantial fall in asset management fees, Grant Thornton research shows.

Grant Thornton financial services partner Kenn Taylor says many charges have been squeezed since the regulatory overhaul but that has simply given rise to greater investment advice charges.

The average total cost, including financial planning adviser fees, is 2.6 per cent – only slightly down from 2.77 per cent in December 2012, when the RDR was implemented.

Speaking at the FE Investment Summit in London last week, Taylor said the firm has monitored the industry for more than two years after a wealth management client asked him to investigate the “end-to-end charges” of its competitors.

“We have now been running it every single month and in that time the end price to the consumer over that journey has hardly changed at all,” he says.

“But what is really interesting is how the split of the charges has changed quite dramatically.”

Asset management fees have been pushed down “quite substantially” to 1.13 per cent in September 2014 from 1.53 per cent in December 2012, he says.

“The asset management part has been squeezed down due to the rise of passives,” he adds.

Platform charges have remained  stagnant at 44 basis points over the same period, while advisory fees have increased slightly.

The bundled total of financial planning and investment advisory charges has risen to 1.03 per cent from 79 basis points since the introduction of the RDR.

“Because of the way some firms describe and price their services, it is difficult to break out costs between financial planning and investment advice services,” Taylor explains.

“Although it is clear from the firms that do [that] it is the investment advice element that has increased in this period.”

For the survey, Grant Thornton canvassed 19 wealth management firms each month, asking for the price of managing a £100,000 investment in a multi-asset growth portfolio for a decade.

Taylor says the fees are a steep hurdle to climb, especially in some of the lower-risk portfolios, in the current low-growth world.

“You have to outrun cash plus 2.5 per cent just to make it profitable. In a harsh regulatory light, [advisers] will be looking at that and thinking: ‘That’s what I have to offer in real gains to make this service worthwhile.’”

Whitechurch Securities managing director Gavin Haynes says the fees outlined in the study are in line with what he sees in the industry and his firm’s charges.

He says: “The asset management charges have come under pressure whereas the value of the adviser, in terms of client relationship, means they’ve been able to increase their margins.”

He admits the 2.6 per cent end-to-end cost is relatively large but says that after the RDR it is up to each part of the chain to justify their price through the value they add.

“Whether or not you do it yourself, you will need to pay the platform fee and the asset management fee. We have to make sure we offer returns that are more than our charges.”

Adviser views


Paul Greaves, chartered financial planner, Hart Greaves

We rarely have clients use a discretionary service with a wealth manager. I would have thought it would be easy to get the cost under 2 per cent. It’s interesting that fund managers have cut their fees at bit.

At the end of the day, you’re going to get a greater cut going to the people closest to the client because they control the business. The further away from the client you are, the more of a commodity you become.

Lloyd Thomas

Darren Lloyd Thomas, managing director, Thomas & Thomas Finance

With the introduction of RDR, we saw costs were likely to rise so we have invested in the skills in-house to deliver a good end-to-end service for our clients. The way to lower costs for clients is to do everything you can in-house. The moment you start layering your costs and increasing the number of advisers your client uses, the costs go up and up.

Generally speaking, looking at that it’s about 60 basis points more than our offering, which is a fair drag over time. 


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. It is clear why end to end costs have not changed:
    1. We as advisers are a receiving somewhat less per hour, due to the raised bar on independence and the ever greater compliance burden.
    2. Asset management fees have not fallen significantly unless you used only retail funds prior RDR.
    3. Regulatory fees such as those to the FCA, FOS, FSCS have ALL gone up.
    I am amazed that reports such as this and indeed the regulator find such statistics (as those reported here) surprising. Who did they think would pay if it were not the consumer? Did they really think the advice community would fund them?

  2. So the status quo has remained regardless of the furore. I can just see it now……..

    Interviewer: So, Mr Wheatley, the RDR has had no real cost benefit at all for those who use Financial Services advisers and firms then? Has it all not therefore been a huge waste of time and money for all concerned – Clients, Advisers, providers, investment houses and fund managers?

    M Wheatley: No not at all, the industry is in a better place than it was. It is a much more transparent industry than it was previously, post RDR people can see what they are paying for.

    Interviewer: But they are still paying the same total regardless of whether or not the see how the sum is arrived at, be that using clean, super clean or bundled share class – around 2.66%pa all in so the RDR has been a huge white elephant.

    M Wheatley: No, no ,no you are missing the point. Consumers can now see exactly how the total costs are made up so they are better informed to make choices.

    Interviewer: If you go into a super market to do your shopping, get to the till to find out that the bill for the same basket of goods is the same as it was previously, regardless of the fact that some items have increased slightly and some decreased slightly. You still have to pay the same at the end of your experience in the supermarket. How is that better?

    M Wheatley: Yes but at least now I can see how my bill is made up by having itemised billing and the same should apply to the Financial sector. Its much better, much cleaner, much more transparent.

    Interviewer (frustration sets in): So to get transparency, instead of implementing the RDR if you had instructed advisers to amend their ToB slightly to CLEARLY break down the costs……. Say something along the lines of: “For doing this piece of work, I will charge you 3% of your investment amount which equals £xxx pa. There is a product charge of x%pa for the provider and this equals £yyy pa, therefore in total that will be £zzz of a cost for this investment” Are you saying that would not have had the same end result as we see with the RDR, minus the £billions involved with it?

    M Wheatley: No far from it, our research showed that consumers wanted a more transparent industry so we planned and implemented the RDR to provide exactly that and it has been a great success so far by and large.

    Interviewer (under increased frustration): I see, so £billions spent, thousands upon thousands of job losses – directly as a result of the RDR, just so the end user can see that the advice is costing £xxx, the product is costing £yyy therefore the total is £zzz, is that what your are saying?

    M Wheatley: Yes, absolutely

    Interviewer (now really frustrated): So you actually think this is more transparent than the adviser adding 3 lines to their ToB (for virtually no cost) of “For doing this work for you, I will charge you 3% of your investment amount which equals £xxx pa and there will be a product charge of x%pa for the provider to manage your investment which equals £yyy pa so in total that will be £zzz. of a cost for this investment”?

    M Wheatley: Yes, absolutely

    Interviewer (now at his wits end): I see ehhhhh ………. We are actually just going round as in circles with this Mr Wheatley aren’t we?

    M Wheatley: Oh yes absolutely.

    Interviewer: And when exactly will it end?

    M Wheatley: As soon as you like

    Interviewer (now totally exasperated): Thank you for your time Mr Wheatley

    M Wheatley: My pleasure, I can assure you. Now where’s the free nosh and drinkies???????

  3. I agree with the article but not sure about the headline. If we had deflation of 6% pa in the UK as a whole, “prices remain static” wouldn’t be what people are talking about.

    The movement of 2 of the 3 parts is also significant – down 27% on the Am bit, up 30% on advice. That really is news – and my guess is what Kenn Taylow was really trying to get at.

    I also think £100k is at the low end of a wealth management portfolio so if one looked at £250-500k the average charge of 2.6% – which I believe includes initial consultation/product fees spread over 10 years -would be much closer to the 2% which both Paul Greaves and Darren Loyd Thomas cited.

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