Wealth advisers in the UK are overhauling their models to distinguish themselves from more expensive private banks and win more clients, according to a new survey of the industry.
In a report entitled “Transforming the Worth of Wealth”, the consulting firm Scorpio Partnership identifies eight categories of financial advice service, catering for different levels of personal wealth.
At the lower end, it highlights independent financial adviser groups serving the mass affluent, such as Hargreaves Lansdown and St James’s Place, as well as the wealth management arms of banks such as HBOS Private Bank and HSBC Premier.
Higher up the ladder, it names independent firms seeking out investors with at least £250,000 in assets, such as Heartwood Wealth Management or Route Group.
Private client asset managers, such as Close Wealth Management and Rathbones, and smaller boutique banks such as NM Rothschild and Arbuthnot Latham, require higher minimum investment levels of £500,000. And at the top of the market, Scorpio positions private banks and multi-family offices serving the wealthiest families, such as Iveagh, Sand Aire, Fleming Family & Partners and Guggenheim Partners.
But competition between the different levels remains fierce, according to the report, as specialist firms seek to lure clients from their existing banks. The 25 firms surveyed in the Scorpio Partnership report posted less than 15 per cent growth in clients every three years, on average.
As a result, some of the most established names are pushing into regional markets. For example, Kleinwort Benson Private Bank has opened a number of offices outside London, and Goldman Sachs now has an office in Birmingham.
Other wealth managers have turned to consolidation to achieve scale. In recent years, Deutsche Bank’s acquisition of Tilney Investment Management, Citigroup’s takeover of Quilter and Towry Law’s tie-up with Baker Tilley have created larger advisory groups.
So, as an alternative, smaller fee-based “boutique” wealth managers are now setting up as consortia. Last year, eight firms joined forces to launch the Aurora Group, in an attempt to appeal to private investors who are dissatisfied with their private banks.
Fee-based advisers say that a common complaint about private banks is their reliance on selling clients structured products with high charges and confusing terms.
“A structured product pays 2, 3 or even 4 per cent commission upfront, so no wonder they have been pushed so hard by the private banks,” says David Scott, managing partner with Vestra Wealth Management. “These days, a lot of firms are trying to offer the same expertise as private banks but more bespoke offerings.”
The members of Aurora Group – Investment Quorum, Capital Asset Management, Asquith & Partners, Evans Hart, In2Consulting, Price Bailey Private Client, Cavendish Ware and London Wealth Management – say they are able to negotiate more favourable deals with providers, offer an expanded product range and reduce fees by teaming up. Ideas on investment strategies are also exchanged between relationship managers from the member groups.
“In the credit crisis, more investors are turning to smaller organisations focused on clients – and not on products – and that’s good news for us,” says Richard Bertin, managing partner with Asquith & Partners. “There’s a genuine feeling that people have been let down by their private banks. Across our group, investors can buy into foreign exchange markets, equities, structured products, funds of hedge funds and a range of plain vanilla tax wrappers like self-invested personal pension and individual savings accounts.”
As the economy weakens, many financial advisers believe more investors will look to transfer assets to smaller boutiques like these, to get a bespoke service – and further consolidation will take place at the lower end of the market.
