High net worth clients look to ditch fee-based model

A new study suggests that while clients are generally happy with their advisors many of them want to change how they pay their fees

High net worth clients look to ditch fee-based model
The fourth and final report of the 2015 Futurewealth series was released last week and while many of the findings suggest high net worth clients are happy with their advisors, many of them would prefer to pay fixed-rate fees rather than a percentage of assets under management.
“The Futurewealthy anticipate a shift in the way they pay for advisory services in the future,” the report stated. “While 31% of them currently pay using a percentage fee on the assets held under advice (the most widely used fee structure), just 26% would like to continue with this structure in the future. Instead, the proportion of individuals currently using time-based or fixed fees is set to increase.”
The report, which surveyed 3,113 high net worth clients – average of US$2.7 million – from around the world, found that the wealthiest (those with net worth above US$10 million) have the biggest aversion to percentage-based fees.
Specifically, almost one-third of those worth more than US$10 million currently pay their advisors a percentage of assets under management, only 20% want to continue doing so. Even more damning is the fact that 25% of those worth more than US$10 million pay transaction based fees but only 18% want to do so in the future.
While high net worth clients want value for the services their advisors provide, they also want to be more specific in the fees that they pay.
“Instead, our wealthy value hunters are looking to compensate their wealth management firms more precisely for the service they receive, rather than the value they bring to the relationship,” the report found. “While 20% of the Futurewealthy worth over US$10 million currently pay fixed fees, 32% would like this structure going forward. The percentage opting for a time based fee increases from 3% to 8%.”
Earlier this year WP reported on the changes that are taking place in the U.S. including a move to a retainer model suggesting the 1% fee model could be a thing of the past.  AUM could be a thing of the past. The Futurewealth series of reports certainly suggests the fee discussion is headed in that direction.
“Financial planning is ‘the free toaster’ of the industry,” Bob Veres, publisher of Inside Information told a packed house at the spring National Association of Personal Financial Advisors conference in San Diego. “Within the next five years I think you'll see advisors migrating to something else.”