Coronavirus will accelerate the shift from ad valorem to fixed fee models in the advice sector, according to new research.
Technology firm Dunstan Thomas surveyed investment advisory firms serving high net worth individuals during lockdown, commissioning pollsters Opinium to speak with senior managers at 58 firms consisting of banks, platforms and wealth managers.
The survey asked respondents how the pandemic has affected client portfolios, business models and long-term trends.
Thirty-six per cent of firms said Covid-19 has accelerated a shift away from ad valorem fees towards fixed fee models.
Half of discretionary fund managers and 43 per cent of asset managers say this move is highly likely in the wake of lockdown.
One in six advisory firms say the intergenerational wealth transfer from Baby Boomers to others is their medium-term focus.
Thirty-one per cent of DFMs consider this their top medium-term priority.
The same percentage predict they need to prioritise preparation for migration to outcomes-based planning.
The survey also looks at specific areas of digital communications in line for investment over the next 12 months.
Co-browsing and on-screen document sharing among wealth managers is a priority, as 53 per cent of firms want to improve the customer experience during these sessions.
A further 22 per cent want to offer this capability to clients for the first time.
Nearly half of wealth managers want to improve their instant messaging functionality while 22 per cent want to offer it for the first time.
Dunstan Thomas chief innovation officer Andrew Martin says: “It’s becoming clear that Covid-19 is set to accelerate wealth managers’ plans for digital transformation. Digital channels which are already in place, are now set for significant improvement and augmentation. And many are putting in platforms and new communication channels for the first time over the next year.
“The focus must remain on customer experience so that customers get a consistently positive experience regardless of which channel they use to make contact with their adviser. The other focus is on user experience as portals with key information and indicators are deployed to support both advisers and their clients.”
Michael, interesting article about the move to fixed fees. That is exactly what I have been working on during lock down, trying to find the balance between fixed fees and portfolio sizes so existing clients aren’t disadvantaged but so I can put a true cost on the value of advice not portfolio size. I made the decision not to provide an on-going service where clients benefit from a multi asset fund but to offer ad hoc reviews. It feels the right thing to do to move to fixed fees as I can now apply the fee to the least tax efficient product. So far clients have been in favour, so I am comforted. Interesting what other have to say of their experience.
All that matters is that your proposition is value for money, fair and competitive, however you choose to structure it. We use a mix of fixed and ad valorem fees to achieve that aim, plus for HNWIs we build on relevant additional benefits, e.g. free stakeholder pension setups for their children.
Note that this article is specifically about “investment advisory firms serving high net worth individuals.” I’ve heard a lot of holier-than-thou pontificators going on about their supposed fixed-fee propositions over the years, but whenever I’ve mystery shopped them I’ve never yet found one fixed-fee proposition for the average client offering better value than ours.
breath of fresh air …
What exactly is the connection between the CoVid pandemic and increased appetite for fixed fees?
Julian, can I point you to the timeless scene in Yes Prime Minister where Sir Humphrey explains how the results of any survey depends on how the questions are couched!