A report by Capital Asset Management (CAM) slamming the ‘broken’ wealth sector’s fee structure sparked considerable debate.
CAM said levying a fee based on a percentage of a client’s assets is ‘perverse’ and the industry is reluctant to change due to ‘powerful vested interests’.
It clamed 'this very powerful group' was resistant to change and innovation when it comes to reviewing methods of charging clients for wealth management services, preferring to cling to a model which was first introduced almost 100 years ago.
The report also suggested investors find percentage-based fees difficult to calculate and encouraged the adoption of a flat fee approach.
We asked two readers for their thoughts on the current fee model.
Ana Cukic Armstrong (above), CEO, Armstrong Investment Managers, London
‘There has been a lot of pressure for wealth management and fund management fees to be reduced.
‘Investment managers have been overcharging and should adjust to the new, more efficient digital world where service including investment management is only a replicable commodity.
'My son has an app with valuations for most stocks based on the latest research from the leading research houses. Can we assume this means investment managers are redundant? I don’t think so.
'Informational efficiency has put more pressure on investment managers to find undervalued market opportunities and bigger resources are required now the markets have become more efficient.
'Processing of information has become more critical. Platform fees, legal fees, administrative fees should come down.
'More resources are required to manage large portfolios and funds as investment managers have to look for more investment ideas and opportunities.'
Simon Reeks, director of private client investment management, Midas IM, Manchester
The pricing of a service should be in line with the value of the benefits the business provides, while also bearing in mind the prices their competitors charge.
In the wealth management industry the market is highly competitive. The current fee model dominating the industry is the result of what industry players generally need to charge to cover their fixed and variable costs, such as regulatory and vendor costs.
A wealth manager should aim to provide clients with both professional and personalised advice about how to achieve their financial goals and how to protect and grow their money.
The economies of scale have changed and the industry not only spends more time on larger clients, but it can also enhance their returns – thus cutting net costs – because of scaling.
Clearly an investor can run their own money via a low cost online platform, but for those who are too busy running their own business, incapacitated, too young or wish to utilise a professional, the current fee model seems to work. The key is that the client knows the cost involved (and level of service) at outset.