This year’s annual survey of leading wealth managers by Savanta and the FT shows that there has been a decrease in fees for discretionary portfolios over the past two years.
Charges on accounts under £3m have decreased by 10 per cent or more and those on £3m and over by almost 20 per cent. These reductions may have been driven by the introduction of Mifid II by the EU in 2018. This new regulation aimed, among other things, to increase transparency of fees and their effect on the returns to clients. But it may well have served to reduce costs to clients and encouraged wealth managers to reassess, and modernise, their offers.
On average, minimum portfolio sizes for discretionary services have declined from £1m to about £800,000."
Responses to our survey suggest that, while the introduction of the legislation had a significant time and cost effect on wealth managers when implemented, the net effect has been positive on them and their clients. (Though, admittedly, the additional paperwork has not pleased everyone.) These downward pressures on fees and the increased costs will clearly have affected wealth managers’ margins. But there may have been other effects too.
More providers of discretionary portfolios are likely to use some form of “model portfolio”, whether they are adhered to strictly, or flexible for individual clients’ needs. This approach reduces the cost of the portfolio construction considerably compared to portfolios built and managed for each client on a bespoke basis. The strictly adhered to versions also give wealth managers the opportunity to serve and advise clients with far less wealth.
On average, minimum portfolio sizes for discretionary services have declined from £1m to about £800,000. And the minimum investment required for these model portfolios is considerably lower at most wealth managers; James Hambro & Partners for instance offer their alternative discretionary service with a £50,000 minimum investment, compared with £1m for their bespoke offer.
Some wealth managers have also been reducing their non-core services. Fewer now offer the more niche offshore, charity and online-specific services. However, reflecting the recent growth and resilience of the wealthiest segment of society, the ultra high net worth individuals, more now provide family office services.
Another potential impact of increased regulation is more clarity on what is on offer from these non-core services, their associated charges, and the unbundling of fees. More wealth managers now apply additional charges for other services and separate platform and/or custody charges. More also now offer alternative fee structures too, such as fixed fees and hourly rates for some services.
And finally, the number of clients each wealth management adviser works with has decreased from 147 to 118 on average since 2017 (before Mifid II was introduced). While this might reflect an increased regulatory workload for advisers, preventing them from serving as many clients as they once did, it may also reflect increased value placed on, and attention paid to, each client.
Overall, regulation in this case seems to have been a catalyst for positive change both for the wealth management industry and its clients.
This article was originally written for the Financial Times by Savanta Director David Barks – to learn more about the study, or discuss your own research needs, get in touch below!