Planners look to high-net-worth segment

Many financial planners are progressively making changes to their business models as they shift towards the high-net-worth (HNW) client segment, according to Investment Trends research.

The annual Planner Business Model survey of 1,600 financial planners, conducted in October 2010, revealed how planners intended to change their businesses in the wake of regulatory reform.

Investment Trends director Mark Johnson said that while planners have been gradually moving to asset-based fee-for-service for some years now, and the Government announcement of the proposed ban on commissions had sped up that trend, an unexpected outcome of the research was the increasing interest in fixed price fees.

“Planners said that asset-based fees would still be a big component but they are now also saying that fixed price fees would start to become more important,” he said.

Johnson said that in 2010, 24 per cent of revenue on average was coming from upfront commissions, 31 per cent from trail commission, 22 per cent from asset-based fees, 14 per cent from fixed pricing and 4 per cent from hourly rates, with the rest coming from volume rebates from dealer groups and the like.

“But when we asked the planners what they think the world will look like in 2013, they estimated that the proportion coming from upfront commissions will be down to 19 per cent, trail down to 20 per cent, and asset-based at 23 per cent,” he said. “But fixed price fees they expect would be more like 26 per cent.”

Investment Trends analyst Recep Peker stated that the survey also revealed what kind of client advisers expected to service in the future. Some 62 per cent stated they would not be able to support as many lower-balance clients, while 20 per cent stated that they intended to service only a small group of HNW clients, he said.

The research revealed that advisers increasingly intended to offload C and D clients and charge more for the advice they provided.

Johnson said those advisers with higher average funds under advice tended to offer a wider range of services, in particular direct shares, self-managed super funds, exchange-traded accounts and managed funds services. Johnson said that if advisers were to justify the higher fees they charged, particularly fixed fees, they would need to provide a broader range of services to demonstrate the value they provided.

Johnson said that the research was more about advisers’ intentions rather than actions, and most were avoiding taking on more low balance clients while others were considering selling that part of their client book. However, Peker noted that the average number of active clients per adviser had come down, with the average adviser servicing 157 clients (down from 175).