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.”
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.
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.