Wealth managers failing to explain regulations and investment decisions to HNW clients

An in-depth survey of high net worth individuals (HNWIs) suggests their wealth managers have failed to effectively communicate recent regulatory changes to their clients, with 40% saying they had not the definition of independence explained to them.

Similarly, four out of 10 of the more than 5,000 HNWI and 750 ultra high net worth individuals (UHNWIs) surveyed by MDRC said they had not had the new regulations around payment for advice made clear to them.

This lack of communication comes at a time when a growing number of wealthy clients want to have a better understanding of what they are invested in and why.

‘The majority of the HNWIs, 55%, do not wish to be actively involved in the management of their assets, but 65% of these would like to be informed of the investment decisions made on their behalf and, perhaps more importantly, would like to be able to understand them,’ said Richard Williams, managing director of MDRC.

This is up from 61.2%, in 2011, and reflects wealthy individuals’ heightened concerns about certain financial products or areas of the market in the wake of the financial crisis.

The report, the consultancy’s 14th annual UK HNW survey, found the number of HNWIs in the UK has risen by 2% to around 522,400 over the past year – although this remains 3.6% lower than in 2011. The total wealth of the UK taxpaying HNW market is estimated to be £1.2 trillion, with the average individual aged 59 years and seven months of age.

Perhaps unsurprisingly it found a concentration of wealth in London and the South East, with 40.7% of the market living in this region and owning 70.3% of the UK’s personal investable assets.

Williams expects the number to grow slowly but steadily over the next three years at a rate slightly higher than UK GDP. Assuming GDP growth of 0.7% this year, this would equate to a 1%-2% rise in the number of HNWIs in 2013 and 2%-3% in 2014 and 2015.

MDRC categorises HNWIs as having at least £500,000 of investable assets and UHNWIs as people with more than £5 million.