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Will fee competition kill wealth earnings this year?

by Elsa Buchanan on Apr 09, 2014 at 07:00

Will fee competition kill wealth earnings this year?

Wealth managers have warned that earnings in their own sector could be subjected to downwards pressure this year as fee competition bites.

A survey, carried out by Wealth Manager, found that 42% of an 80-strong sample of our readers expect earnings in the industry to move downwards in 2014. A little over 38% expected earnings to stay static, with the minority tipping upwards movement.

It is a finding that reflects concerns about oncoming market weakness as global monetary policy unwinds, particularly as fees are inherently linked to the direction of markets and trading volumes, alongside the rising costs of doing business.

‘We had a jolly good year in 2013 as markets rallied, and although we’re hoping that will continue, it won’t be enough to offset regulatory and fee overhaul cost,’ consultant Michael Maslinski explained.

Tim May, chief executive of the Wealth Management Association, added that concerns about profitability were understandable, given the costs of doing business.

‘Compliance costs have been a significant drag on profitability – in the worst cases they have cut wealth management firms’ profits in half. Those compliance costs include funding for the FSCS, which has been at record levels for four years now.’

James Brearley director David Hannis, on the other hand, expects fee competition will weigh on earnings in 2014.

‘It’s a two-pronged attack, as regulatory costs continue on the upward trend that we have seen over the last years. Like the fund management industry, wealth managers are under pressure from both clients and competitors to look at their overall costs and fee structure.

‘I would suspect that, on balance, it’s the fee structure that will bring a little more pressure rather than regulatory costs,’ he explained.

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