High-net-worth individuals have been hit with a fee rise by the retail distribution review (RDR). The key dispute is that many of them noticing no improvement or difference in the quality of advice given after the fees introduction, writes Patrick Brusnahan.
Ledbury, a leading research company, found that a sample of 200 UK-based HNWIs, with over £1 million in assets each, had faced a 7% fee rise after RDR was introduced in January this year.
However, the increases are not equal for every client. Ledbury said: "The increases are, however, by no means uniform. They have been shouldered by a relatively small number of individuals, with the majority of HNWIs reporting no change."
Around 12% of the sample noted a rise of over 25%, while 10% said they now pay between 1 -25% more. On the other hand, over half of the sample purported that they experienced no change in fees.
After the introduction of the new RDR rules, a shift away from ad valorem fees towards time based fees. Ledbury reported that almost 10% of HNWIs now pay for advice on a time spent basis. The most popular option among the sample was a want to link fees to performance and profit, but this remains a less mainstream option.
‘We would argue that it would be a powerful relationship-building tool for wealth managers, binding the fortunes of providers with their clients, and would also allow wealth managers to share in meaningful upside if they are to succeed in managing their clients’ wealth successfully,’ Ledbury said.
In addition, Ledbury surveyed 500 managed clients with over £500,000 in assets and found no material improvement in the quality of advice received by high net worth clients since the introduction of the RDR fees. 78% of the sample agreed they were receiving good quality advice, with only 9% disagreeing. However, one in three clients were only marginally impressed with the quality of advice with one in ten unimpressed.
Stuart Rutherford, director of Ledbury, said: "There is real upside from getting this right, with clients who are happier with the quality of advice typically placing a larger share of wallet with their provider. Some 69% of those who felt they received good advice had more than half of thier wealth being managed by the provider in question."