This year’s FT Private Client Wealth Management Survey reveals a startling change: to access some wealth management services you need to be almost 50 per cent wealthier than last year.
The UK wealth management industry continues to adapt to the new regulatory environment, in which higher compliance costs appear to be prompting firms to shun less well-heeled — and thus less profitable — clientele.
In 2015, the survey showed that the average minimum amount an individual needs to invest to access advisory services is £806,000, a 48 per cent increase on last year’s minimum figure of £542,000. The research also shows that many wealth managers are also restricting access to their discretionary services. An individual now needs to invest an average £650,000 in a discretionary portfolio service, a 27 per cent increase on 2014’s figure of £517,000.
One-third of wealth managers offering advisory services now require a client to place at least £1m with them to obtain their advice, while 22 per cent require more than £1m for discretionary services. This suggests that many wealth managers are adopting a tiered service approach. If a client wants an advisory service but cannot — or will not — invest the required amount, they are offered a more cost-effective discretionary option. And many of these utilise a collective managed portfolio arrangement rather than bespoke design.
Unsurprisingly, this relegation in service delivery has upset a number of clients. Our wealth management benchmark data shows that client satisfaction fell from 62 to 54 per cent during 2014.
So will wealthier clients receive a better service?
Two findings suggest that they might. Firstly, there are more client facing advisers per client than in 2014. Over the past 12 months the ratio has fallen from 175:1 clients to advisers to 161:1, notionally suggesting that advisers will have more time to attend to client needs.
Secondly, annual fee tariffs on discretionary portfolios over £1m have fallen by an average 5 basis points. This may be evidence of increased competition in the market for clients that providers really want to attract and keep hold of. It also suggests that recent consolidation within the market has helped to limit cost increases and makes larger client portfolios more cost-effective.
If there is any positive news at all for those who want their wealth to be managed but cannot get the service they want, it is the rise of online platforms. Just over three-quarters of wealth managers surveyed saw clients’ increased use of these platforms as a positive development for their business. More than a quarter stated that it was an area of focus in the coming year.
The spate of new entrants in the online discretionary space also suggests that this is an area of real innovation within wealth management. And while this may not provide the face-to-face contact that many clients desire, it could provide access to the investment expertise they crave.
However, wealth managers should beware; if they cannot service them appropriately there is always likely to be another provider willing to take the business of the shunned affluent. We estimate that the 1.1m affluent individuals (with £250,000–£1m investable assets) in the UK have £700bn in total assets between them; a highly valuable market for those willing to invest the time and money to serve them.
David Barks is an associate director at Wealth-X Custom Research (formerly Ledbury Research), the global provider of wealth intelligence and research partner of the FT Private Client Wealth Management survey for the past six years.