High-net-worth individuals are increasingly calling for wealth managers to set their charges on a fixed fee basis, rather than a percentage of assets model, new research shows.
The demand for fixed fees is set to grow to 23 per cent for UK high-net-worth individuals, up from the current 20 per cent, the study by NPG Wealth Management, SEI and Scorpio Partnership revealed. The research is based on more than 3,000 investors with an average net worth of £1.7m.
According to the research, time-based fees will also experience a similar increase in preference by investors from 8 per cent to 11 per cent in the UK.
For ultra-high-net-worth individuals, defined as those investors with a minimum of £6.5m assets, almost 10 per cent are demanding to pay time-based fees instead of paying on a transactional basis.
Currently around a third of ultra-high-net-worths pay transactional fees, but just 20 per cent want to continue doing so. Meanwhile, the proportion paying fixed fees is set to rise from 20 per cent now to 32 per cent going forward.
However, SEI Wealth Platform managing director Brett Williams says the demand for a fixed fee structure could be a challenge for firms technologically unprepared to make the shift.
He says: “With our research suggesting that many clients will want to move away from charges based on their asset levels, in favour of fixed fee structures, the big question is whether wealth management firms will be ready for this predicted shift in behaviour.
“Some have failed to invest in their technology over the years, meaning that they will be unprepared for the necessary changes that will need to be made to their systems.”
Also, the proportion of UHNWIs paying advice with fixed fees is set to rise from a fifth now to 32 per cent in the future.
Scorpio Partnership managing partner Sebastian Dovey says: “The traditional ‘percentage of assets’ model means that the client is effectively compensating their financial provider for the value they bring to the relationship, rather than the value they receive.
“Understandably, they want more control and transparency by engaging with fee structures that more closely reflect their engagement with their financial provider.”