More advisers outsource post-RDR as smaller clients are left behind

More advisers are continuing to outsource investment management post-RDR while the number of smaller clients being  “shown the door” is also on the rise, research suggests.

The adviser analysis by Schroders concluded that more and more client portfolios are being deployed to third parties. Presently just over half, at 56 per cent of respondents, do not outsource, falling from a higher 60 per cent 12 months earlier.  

It also found that 68 per cent of advisers have increased the proportion of assets they outsource, up from 62 per cent in 2013, while 93 per cent assert that they will continue to do so. 

In addition, some 49 per cent of advisers segment their client base by size or resource while the vast majority at 86 per cent now offer different levels of service depending on the size of a client’s portfolio.

But while advisers in general have given the RDR the thumbs up, almost a fifth, at 18 per cent, have formally asked smaller clients to leave, up from 14 per cent in 2013. The majority, at 69 per cent, of those asked to leave have portfolios of less than £50,000.

Schroders managing director of UK Intermediary Robin Stoakley says: “All types of traditional outsourcing are doing well but smaller clients continue to be shown the door. The advice gap is real.”

In terms of client fees, the fund manager’s study found the proportion now charging a percentage of assets under management for their services is on the rise, up from 37 per cent to 45 per cent but a combination of fees and AUM remains the most popular remuneration structure.

In fact just 1 per cent of advisers now charge an hourly fee, a 50 per cent drop on 2013’s total, while 4 per cent use a fixed rate, representing a 2 per cent rise on last year’s tally.

Some 45 per cent of advisers, marking a significant 16 per cent rise on 2013’s total, charge an average of 50 basis points, while only 4 per cent now charge in excess of 100 basis points.

Client agreed fees

Schroders research

Separate research from online investment adviser Wealth Horizon, found many advisers will now only take on new clients if they have more than £150,000 to invest, as costs continue to soar.

It said this minimum has steadily risen over the last few years, helping push up the average revenue at adviser firms between 2009 and 2013 from £480,000 to £700,000.

Wealth Horizon chief executive Chris Williams says: “The reality is more and more consumers are being priced out of individual financial advice.

“While advisers are focusing their businesses on higher net worth clients, large numbers of investors are being left without access to financial advice. Of the UK’s investing population, just 30 per cent has over £25,000 to invest, leaving the majority well below the level required to receive tailored individual advice.”