View the article online at http://citywire.co.uk/wealth-manager/article/a740170
Do you know the real cost of your clients?
by Elsa Buchanan on Mar 18, 2014 at 07:30
Already facing higher regulatory expenses, companies are struggling to grow their businesses organically and increasingly looking to manage their cost bases more effectively to maximise profitability.
But do wealth managers know the real cost of managing their clients?
Gilly Green, wealth management practice leader at consultants Knadel, said wealth managers rarely fully assess the cost of servicing their clients.
‘Many wealth managers do have an instinct that certain types of client are expensive to service, or even unprofitable,’ she said.
‘Sometimes it’s simple – a client with £200,000 in their portfolio paying a 1% discretionary fee might generate £2,000 per year in fees, but with just two visits a year from a manager they very quickly become unprofitable.’
Additionally, the nature of the business is cost-generating, as wealth managers often have an expensive front office, employing ‘highly paid’ investment directors, wealth managers and relationship managers, who all may need support from administrators, said Green.
Firms can link the back office staff numbers to how many transactions they process or how much their outsourcing costs ‘but they will rarely have assessed exactly how much time their most expensive assets – their investment managers and/or relationship staff – spend on a client by client basis,’ she added. ‘So people are being conscious about the cost of [small] clients but not everyone has done the full cost analysis.’
While periodical analyses are essential for firms such as Thesis Asset Management, director Michael Lally believes companies still miss costs when assessing clients.
‘We know exactly what we earn on each client [as] we have monthly figures we keep track of, but that doesn’t necessarily tell you what they cost you,’ he said.
Lally said while technology has meant underlying costs have come down, the real cost is time. ‘You get incredibly variable costs, from a couple of hundred pounds spent in back office administration, or having all investments loaded, to the big variable cost of having some people travelling halfway across the country.
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