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How can wealth managers conquer the execution-only market?

by Annabelle Williams on Jan 23, 2013 at 10:22

How can wealth managers conquer the execution-only market?

With the retail distribution review (RDR) now in force, a growing number of wealth managers are looking to attract less wealthy clients through direct offerings, but can they compete with the incumbents?

Estimates of the scale of the ‘advice gap’ vary. Consultancy firm Deloitte believes there are now
5.5 million people who are unable or unwilling to pay for advice.

Jonathan Fry, whose eponymous wealth boutique launched an execution-only service in the summer of 2011, says his firm wanted to offer clients the option to implement their own investment ideas.

However, he believes firms that are launching execution-only to gain a presence in the direct-to-consumer market face a huge challenge.

‘Smaller wealth management firms should be under no illusions as to how difficult it is to make an impact and make money out of execution-only and guided advice,’ Fry said. ‘There are some big players in the market – for example, AXA, Barclays Stockbrokers and TD Waterhouse.

‘These big players have market capability and are investing a significant amount of money in delivering something that is both competitive and functional with well-presented web-based services. Most wealth management firms who focus on personal relationships and face-to-face advice are going to struggle to get near to emulating this.

‘For us, the challenge was we recognised that high net worth clients may wish to implement their own investment ideas on a competitive basis.’

Brian Dennehy, founder of FundExpert, says that for new entrants, trying to compete on price with the likes of Hargreaves Lansdown is ‘frankly pointless’.

‘All of the [businesses] that are coming in want to compete on price,’ he said. ‘Hargreaves Lansdown has already got that corner of the market on scale and no-one else could spend what they need to on sales and marketing to even begin to compete. Anyone else with non-advisory business needs to have a unique selling point.’

The sheer scale of the challenge facing newer entrants is echoed by David Loudon, managing partner at Redmayne-Bentley, which has a long-established execution-only service.

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3 comments so far. Why not have your say?

Alan Steel

Jan 23, 2013 at 11:14

How do you price good independent advice ? How do you pay in the long run by picking your own funds and then buying them as cheaply as you can ? The Dalbar studies in the US , and closer to home the abject record of private investors gives you a clue .

Outstanding Ind advice isn't a cost it's the best investment you'll make !

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Susan Hill

Jan 23, 2013 at 11:50

Useful calculators especially the annual rates of inflation, I might use it as a quickie tool, link below. This site is for investors who don't yet understand the value of advise. That's our greatest challenge as advisers, educating investors to the benefits of taking advise before taking action.

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Jan 23, 2013 at 12:03

5.5 million people unwilling to pay etc etc is, imo, a very conservative estimate.

The only winners in this armadeddon (for small investors) is HMG (HMRC)

For every £100 fee add 20% for VAT. Add another likely 40% in income tax from the adviser's "profits" and HMG grab a total of 60% from Grandma Buggins

In my younger days there was something called the Maximum Commission Agreement but this was deemed to be uncompetative which always puzzled me. HMG have always disliked commission becuase it was not subject to VAT.

I do, of course, acknowledge that Wealth Managers (so called!!) do not want "small " investors.

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