The Recalibrating Value in Wealth Report found that in Europe, 33% of high net worth clients (HNWs) currently pay a percentage fee based on the assets under advice but just 29% would like to pay this way in the future. Similarly, the usage of transactional charges looks set to drop from 16% of European HNWs now to 13% in the future.
Instead, fixed fees look set to rise in popularity from 19% of European HNWs now to 21% going forward. Time-based fees will experience a similar increase from 8% to 12%.
The Futurewealth report found the most pronounced shift in fee formats among the world’s ultra high net worth clients, who are demanding radically different payment structures. While almost a third of those worth more than US$10 million compensate their wealth management firms using percentage fee for the assets they are advised on, just 20% would like to continue using this structure in the future. Time-based fees are set to become more popular with almost 10% of ultra-wealthy investors wanting to pay this way in the future.
Sebastian Dovey, managing partner of Scorpio Partnership, said: “The traditional ‘percentage of assets’ model means that the client is effectively compensating their financial provider for the value they bring to the relationship, rather than the value they receive. Understandably, they want more control and transparency by engaging with fee structures that more closely reflect their engagement with their financial provider”.
The findings echo those of a recent survey by the Platforum, which found that flat fee direct-to-consumer fund supermarkets saw a 22% increase in the average size of customer accounts between the end of September 2013 and the same date in 2014. Fixed-fee platforms included Alliance Trust Savings, Interactive Investor and The Share Centre.
Brett Williams, managing director, SEI Wealth Platform, UK Private Banking said: “With our research suggesting that many clients will want to move away from charges based on their asset levels, in favour of fixed fee structures, the big question is whether wealth management firms will be ready for this predicted shift in behaviour.
“Some have failed to invest in their technology over the years, meaning that they will be unprepared for the necessary changes that will need to be made to their systems. To keep pace with an increasingly complex world, we are therefore seeing a heightened number of firms choosing to outsource to technology businesses that have institutional capabilities, so they can focus on developing their proposition and service.”
The research is based on the views of 3,113 investors from around the world with an average net worth of US$2.7 million.
