Stars align for independent advice, study finds

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Demand for independent financial advice is set to skyrocket over the next few years, a new survey by global consultancy firm EY found. EY predicts that there will be an almost 20 per cent increase in clients seeking independent advice inb the next three years.

The EY ‘2019 global wealth management research report’ says the sector is primed to “rise rapidly… fuelled by above-average growth in Asia-Pacific”. And the EY survey found the demand for independent financial advice is leaking down from the traditional ultra-rich cohort through to lower income levels.

“Historically, the wealthiest clients have made greater use of the independent advisory channel; however, the expected growth over the next three years will be highest in the mass affluent (34 per cent today to 42 per cent expecting to use) and HNW segments (34 per cent today to 40 per cent expecting to use),” the EY report says.

But clients are also looking for more tailored ‘goals-based’ solutions rather than products, lower and differently-structured fees as well as technology-based engagement.

The EY study says, while product choice is important, the majority of those surveyed “want advice and planning that is timely and built on an aggregate understanding of their personal financial lives”.

Future winners in the wealth management game “will be focused on such solutions that are proactive, personalized and intuitive to use”, EY says.

Traditional fee models, too, are coming under closer scrutiny from clients with almost half of those in the EY survey suspecting their wealth manager or adviser of over-charging.

Wealthier and younger clients, in particular, don’t trust current advice fee models with many baulking at the standard ‘assets under management’ pricing approach.

“Percentage of assets under management is currently the most common payment method, but fixed fee and per hour of support methods are most desired,” the EY report says. “Wealthier and more knowledgeable clients show a higher preference for fixed fees, which help clients lock in costs and establish greater objectivity.”

Independent financial advisers are best-placed to adopt goals-based solutions and alternative fee schedules, EY says.

The global study also found clients are more willing than ever to switch wealth management firms – and maintain multiple financial provider relationships (with five the average) – if incumbents fall short of the now higher standards.

About a third of those in the EY survey have changed wealth management firms or shifted assets in the last few years while another third said they planned to do so over the next three years.

Declining client loyalty is partly due to increasing knowledge but more widespread availability of sophisticated financial technology – or fintech – is also a factor

“The increasing digitalization of wealth management activities and the rise of self-service offerings have made clients more empowered and willing to switch providers or shift assets for value,” the report says.

Yet despite rapid uptake of fintech solutions among all client groups (overall 38 per cent have already used a digital wealth product with the figure set to rise to 45 per cent in three years), the future does not necessarily belong to disruptors.

“No single FinTech has been able to acquire a large enough client base to threaten the incumbent dominance yet — though total clients are growing, they still do not typically commit significant assets,” the EY study says. “The FinTech playbook has typically been to acquire clients with a niche offering, then expand to broader bundles and solutions once they own a critical mass of clients.

“However, this strategy will bring FinTechs closer and closer to incumbents as their offerings mature and they partner with traditional wealth management firms or established technology players.”

The report – authored by EY wealth and asset management’s Americas advisory leader, Nalika Nanayakkara, and advisory senior manager, Phil Hennessey – was based on a survey of more than 2,000 wealth management clients in 26 countries.

“We profiled clients not just by traditional segments, such as age, gender, wealth and location, but also by level of education, profession, investment knowledge, risk appetite and psychographic profile,” EY says.

– David Chaplin, Investment News NZ

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