Changing the way wealth managers charge fees has not seen a big saving for high net worth clients.
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The Retail Distribution Review (RDR) came into force at the start of the year in the UK and banned commission payments for advisors.
The aim was to make fees more transparent for customers buying financial services, but the question asked by market research firm Ledbury was whether the shake-up has achieved the desired results.
Researchers asked more than 200 wealthy individuals who each had at least £1 million to invest for their thoughts about RDR.
On average, the report showed they are paying an average 7% more now for the same advice they were getting before RDR.
Interestingly, the rise is not across the board, but restricted to just over a fifth of investors (22%)
Around half felt they were paying around the same and the rest were paying a little less or were not sure how the change had impacted on them.
The study also looked at the way high-net worth customers pay for their financial advice.
Instead of the once popular fee structure based on a percentage of invested funds, many financial advisors are changing their business charging models in the wake of RDR.
Many clients are now paying based on time spent on their cases or specific transaction fees.
The survey found around 10% are now on a time-based fee model.
However, many are taking up a performance or profit generated reward structure, where an adviser is paid a fee related to how well the client’s investments perform.
Paying for performance
“This is a powerful method of building relationships with clients,” said a Ledbury spokesman. “The option ties advisor pay into how well they work for their clients and puts a value on their advice.
But fees are not the only way to put a worth on financial advice, and IFA clients must consider the quality of advice as well.
“When benchmarking last year’s responses about how these clients value their financial advice against post-RDR advice, there has been little change and leads us to the conclusion nothing much has changed,” said the spokesman.
The Ledbury report goes on to explain only a third of clients are impressed by the standard of financial advice they receive – while 10% are distinctly unimpressed.
“For advisors who get this right, they can command higher fees from performing well and gaining more business as 70% who are pleased with their advice have more than half their wealth handled by the same manager,” said the spokesman.
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