Among investment industry clients, there’s an unmet demand for advice and growing dissatisfaction with industry compensation models, particularly asset-based fees, according to research from Ernst & Young Global Ltd. (EY).
In a report detailing the results of research, including a survey of 2,000 clients in 26 countries, EY found that investors were increasingly willing to pay for financial advice and planning, but that they weren’t receiving that advice.
“The untapped opportunity for wealth management providers lies on the sidelines, where roughly half of Canadian consumers express interest in financial advice and planning but state they don’t currently receive any,” EY said in a release, noting that the demand for advice was stronger around life events, such as changing jobs, inheriting money and having a child.
Amid the perceived advice shortfall, EY reported that 44% of Canadian investors said they planned to switch wealth management firms in the next three years. This was higher than the global average, where one-third of clients reported that they expected to change firms.
“Clients are switching providers to capture better value,” said the 2019 Global Wealth Management Research report, noting that the wealthiest clients covered in the survey, along with the youngest investors, were most apt to switch.
Along with documenting a desire for more advice and planning, the global report also found that clients increasingly want to access advice through digital and voice-enabled assistants, and that they want new ways of paying for advice.
Forty-five percent of clients said they didn’t trust their firm or advisor to charge them fairly, and “a majority want to pay differently,” the report said. “There is growing concern among clients that fees based on assets under management are not fair.”
Moreover, the survey found that the industry’s most profitable client segments were most dissatisfied with prevailing industry compensation models, and that “dissatisfaction with payment methods increases with wealth levels.”
Additionally, the report said that concerns about value and fairness were “compounded by low awareness and understanding of wealth management fees.”
Improving disclosure and client communication may help address this issue, but the report found that many clients wanted alternative pricing models.
“Most wealth management clients want to pay their wealth managers using a different payment method — often one that offers more transparency, objectivity and certainty,” the report said.
While most clients in the survey paid fees based on assets under management, the survey found that clients preferred fixed and hourly fees because they “help clients lock in costs and establish greater objectivity.”
EY’s research found that firms are considering subscription-based models for certain services, and that there is growing interest in unbundling fees for investment products and advice.
“By splitting fees more discretely, firms are experimenting with creating clearer delineations between receiving value from investment returns vs personalized financial planning and advice,” the report said.