A senior and experienced cohort of financial planners, many of them dealing with high net worth clients, are choosing to find cost savings for both their clients and themselves by moving away from expensive platforms, according to new research conducted by Wealth Insights.
Wealth Insights managing director, Vanessa McMahon told the Money Management Platforms and Wraps Conference in the Hunter Valley that planners were becoming increasingly sceptical about the cost of wealth management products and this was being evidenced by those still choosing to use platforms and those choosing to use other channels such as direct share trading platforms.
“Planners are indicating they are not prepared to pay a premium for using a wealth management product that is not offering great value,” she said.
McMahon said she believed the Future of Financial Advice (FOFA) changes had acted as a catalyst in the change of attitude on the part of planners, particularly the greater transparency around fees and charges, including fee disclosure statements.
She said that a number of planners interviewed as part of the Wealth Insights research process had suggested that at least some clients were likely to be lost as a result of the sending of fee disclosure statements consistent with the new FOFA rules.
McMahon said it was in these circumstances that planners were signalling that they were not prepared to pay for expensive wealth management products when they could access cheaper options elsewhere.
She said that the FOFA process had served to make both planners and clients more aware of fees and charges and that while this had certainly served to help drive down some fees, it had not succeeded in driving down management expense ratios (MERs) with the result that some institutions were perceived as having adopted strategies that captured MER.
McMahon provided data to the conference which she said showed a particular cohort of planners which she described as the “pragmatists” who were choosing to pursue more cost-effective options to platforms and wraps including via the use of share trading platforms, exchange traded funds and self-managed superannuation funds.
She said the importance of this particular demographic of planners was that it tended to be representative of a greater proportion of high net worth and sophisticated investors who were also alert to the costs associated with particular wealth management products.
McMahon said this group represented around a quarter of financial planners but accounted for around 40 per cent of the flows into the platforms.
