Research Partner

Regulatory and Investment Change:

The Client’s View

26th November 2013

Research Partner

Background to the wealth management industry

• 150 firms• £600bn of assets under management and

administration as at 30th September 2013• £5.15bn of revenues in 2012 – Record Year• £1.18bn of pre- tax profits in 2012 – Record Year• Rising hidden and direct costs of compliance

creating record cost levels in 2012 (£3.97bn)

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The interviewees

Investable Assets Individuals Surveyed

MASS AFFLUENT £50k - £249,999 401

AFFLUENT £250k - £999,999 406

HIGH NET WORTH (HNW) £1m+ 200

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Persuading clients to invest more

• A guaranteed return on capital

– 58% said YES

• A guarantee that my capital is protected

– 57% said YES

What would persuade you to invest cash currently held on deposit in other investment products or asset classes?

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The necessity to take risks

Mass Affluent

Affluent

HNW

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

63%

70%

77%

% of respondents that AGREE or STRONGLY AGREE with the statement: "Risk is necessary to make money"

Mass Affluent

Affluent

HNW

0% 10% 20% 30% 40% 50% 60% 70%

38%

47%

58%

% of respondents that AGREE or STRONGLY AGREE with the statement: "I would be happy to risk losses to get potentially greater long-term gains"

“I took a big hit in the downturn and it won't ever recover to pre-downturn levels”

49% are worried about volatility in the stock market

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The importance of investment performance

Proportion ranking it as main reason for choosing a wealth manager / adviser

Mass Affluent Affluent HNW All

1. Investment Performance 45% 40% 37% 41%2. Brand / Reputation 27% 30% 30% 29%3. Range of products 9% 10% 11% 10%4. Relationship with firm 8% 12% 13% 10%5. Level of fees 7% 7% 5% 7%

Choosing a wealth manager / adviser

Staying with a wealth manager / adviserProportion ranking it as main reason for staying with a wealth manager / adviser

Mass Affluent Affluent HNW All

1. Investment Performance 41% 40% 40% 40%2. Brand / Reputation 21% 16% 15% 18%3. Relationship with firm 13% 18% 21% 17%4. Range of products 10% 11% 9% 10%5. Other* 10% 7% 9% 9%

Performance was the top scoring element when considering value for money

*Specified ‘others’ include trust, lack of other options and cost and hassle of changing

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The role of the regulator

“They should be much more interested in fraudulent behaviour, and be prepared to prosecute accordingly. They should be less involved in creating costs in legitimate businesses”

“Avoid mis-selling. Put pressure on the high risk sales advisers and reduce unnecessary paperwork on reliable players”

“Protect against unfair practices, make things transparent, but ensure good advice gets rewarded.”

“Ensure that investors are fully and honestly informed about the nature of financial products and forbid the sale of certain types of product.”

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Few have heard of RDR

24%

76%

Discretionary Investors

YesNo

Have you heard of the FCA’s RDR?

26%

74%

Advisory Investors

Of those who had heard of RDR, 70% claimed to know of its objectives

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A lack of communication

Discretionary

Advisory

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

45%

46%

55%

54%

Have you been approached by your wealth manager/adviser to discuss your old portfolio post January 1st 2013?

YesNo

47% of investors believe they should meet with their wealth manager either twice, four times or more than four times per year - whereas, in reality only 29% meet this standard

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The impact of regulation

How do you believe changes in regulations over the last 5 years have impacted the services you receive from your wealth manager/adviser?

Positively 17%

Negatively 11%

No impact 40%

Unsure 32%

87% of those who cited a positive impact of regulation agreed that costs are now more transparent

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The movement away from advice

Likelihood to invest without advice

Very unlikely

Unlikely Unsure Likely Very likely

Mass Affluent 15% 26% 17% 27% 15%Affluent 10% 22% 15% 32% 22%HNW 13% 21% 14% 28% 26%All 12% 23% 15% 29% 20%

Half of investors are now likely to invest without advice

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Clients picking up the bill

Passed on to you Absorbed by the wealth manager/adviser

Shared approximately equally

Don't Know0%

10%

20%

30%

40%

50%

60%

70% 66%

7%12% 15%

Do you believe the costs associated with wealth managers/advisers complying with new regulations will mainly be...

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Fees increasing as a result

Mass Affluent

Affluent

HNW

All

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

13%

18%

27%

18%

7%

7%

7%

7%

80%

74%

67%

75%

Has the level of fees for your investment services in the last year...

stayed the samedecreasedincreased

Only 13% believe their wealth manager / adviser is hiding the true level of fees

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Setting the right charging structure

What investors currently pay

What investors want

Fees only, based on a percentage of assets held

33% 27%

Fees only, based on an hourly charge or fixed amount

11% 21%

Commission only 27% 27%

A combination of fees and commissions 30% 25%

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Understanding client reports

1% 5%19%

55%

19%

Overall understanding of the information in the reports you receive from your wealth manager(s)/adviser(s)

I understand almost nothing at all

I understand a little

I understand some

I understand most

Understand all

90% of investors are satisfied with the reports they currently receive

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Areas for improvementat least some improvement

significant improvement

Client portal 62% 17%

Client communications / education 55% 16%

Formal surveys of clients' opinions 47% 14%

Advice on Pensions, inheritance and tax issues 44% 15%

Client events/networking opportunities 39% 11%

Mobile apps 38% 17%

Offer more time with my relationship manager 38% 10%

More bespoke service 36% 10%

More knowledgeable staff 35% 9%

Quality of staff 33% 10%

40% of those seeking significant improvement are likely to switch wealth managers if problems are not resolved

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Future expectations

I want my financial adviser to be independent of the products and solutions they recommend to me 87%

I want my main relationship to be with the person who makes the decisions for my investments, rather than a Relationship Manager 63%

I will place more emphasis on understanding risk and my risk tolerance 52%

I will take more control of investment decisions 46%

I will be willing to pay more for a service that meets my needs exactly 39%

I would stay with the wealth management firm if my current adviser left 36%

I will expect to pay lower fees for wealth management services 34%

I will consider splitting my wealth between a greater number of institutions 34%

I will expect more regular contact from my wealth adviser 31%

I will be more sceptical of investment products offered by my provider 24%

Proportion of investors AGREEING with the following statements:

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Clients’ opinions of wealth managers / advisers

My wealth manager/adviser ensures my investment products are appropriate for my declared preferences 67%

My wealth manager/adviser listens to my opinions and needs 65%

My wealth manager/adviser is independent 64%

My wealth manager/adviser employs highly capable personnel 57%

My wealth manager/adviser delivers value for money 56%

My wealth manager's/adviser's interests are aligned with their clients 53%

My wealth manager/adviser delivers a premium service 44%My wealth manager/adviser pushes products at clients that they don't really need 13%

My wealth manager/adviser hides the true levels of fees 13%

Proportion of investors AGREEING with the following statements:

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Client-centric: yes or no?

Wealth Management in

General

Your main Wealth Manager

Strongly agree 5% 12%Agree 30% 42%Neutral 50% 38%Disagree 12% 7%Strongly disagree 3% 1%

Would you describe the following as client-centric?

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Conclusions• Communication a major concern• Formation of an advice gap with clients becoming

self-directed• Clients expecting higher charges to cover increased

regulatory costs• Wish for greater punishment for non-compliant firms

and more reward for legitimate firms• Room for improvement when raising trust and client-

centricity• Investment performance is very important