Services, not fees, are increasingly driving client decisions in wealth management and private banking, a leading US consultancy has concluded in its latest study of clients in the high-net-worth (HNW) and ultra-high-net-worth (UHNW) market segments.
In the United States, the number of wealthy UNHW households with more than 20 million dollars in assets has risen fivefold since 2001, according to the study by Cerulli Associates. High-net-worth households, with more than two million dollars in investments, accounted for nearly half of the total investable assets last year, compared to about a quarter in 2010.
Cerulli, a Boston-based consultancy that supports asset managers, wealth managers and private equity firms, presented its findings during an online event on 28 February. It said the increasing demand for a wider range of services is related to the fact that wealthy clients have become even wealthier in recent years.
Scaling up wealth management services
“Our clients have come back to us and are looking for help, like on how to scale up the services their clients can use,” said Matt Zampariolo, research analyst, wealth management at Cerulli. “A lot of their clients who have been successful find themselves significantly wealthier now than they were five to ten years ago. Along that line this is one of the overwhelming trends we see in wealth management overall.”
When it comes to reasons for beginning a relationship with a private bank or wealth management firm, services and experiences were mentioned as the main reasons by 35 percent of the respondents in 2023, compared to 28 percent in a similar survey in 2020. The investment performance and fees, by contrast, were important for a mere 16 percent of respondents, compared to 27 percent in a similar survey three years earlier.
“We’ve noticed a bit of a rebound in recent years, a bit of a sort of an increase in appetite for investors, specifically High Net Worth investors, who are willing to pay a larger fee, insofar as they’re extracting some sort of value for the costs that they’re paying their advisor,” said Chayce Horton, senior analyst, wealth management at Cerulli.
Although they still account for the largest share of HNW client assets in the US, the growth at wirehouses, large inter-broker dealers that provide a full range of investment services such as Morgan Stanley, UBS, Merrill Lynch and Wells Fargo is slower than in other channels. Wirehouses accounted for some 4.9 trillion dollars in assets under management, with a five-year compound annual growth rate (CAGR) of 5.5 percent. Private banks’ growth was 6.3 percent, to 2.8 trillion dollars.
Investment advisors growing market share
Registered Investment Advisors, RIAs, in the US showed the fastest growth in the last five years, in particular in the hybrid RIA segment. RIAs had a CAGR of 9.8 percent, to 2.1 trillion dollars, and hybrid RIAs 13.5 percent, to 1.5 trillion.
While investment services remained central with 9 percent growth between 2017 and 2023, family-office services, planning and private banking showed faster growth, Cerulli said. Among the services, family-office services, planning and private banking also showed double-digit growth in five years up to 2023.
Among HNW clients, wealth preservation and tax minimisation were the most important investment objectives in 2023. While regular asset allocation has become ubiquitous, providers are looking to add value by increasing their offering in other types of markets, including the selection of alternatives, hedge funds and fund–of-hedge funds.
When it comes to fees, wealth management clients meanwhile are using an increasing number of different fee structures, the firm noted. Where clients on average used 1.85 different structures in 2020, that number rose to 2.09 in 2023. “It may not seem like a massive shift, but it points to an expanding appetite and willingness for clients to pay more for services and pay in different ways,” said Horton.
“Straight AUM fees,” based on assets under management, are becoming increasingly common for clients in the 50 to 100 million dollar range, with millionaires paying their service providers a retainer fee of for example 400,000 dollars per year. Separate fees for financial planning, as part of an alternative fee structure, are used more often, while hourly fees are also becoming more common, Cerulli found. Performance fees and subscription fees are the least utilised types of fees, it said.
Wealth demographics in the U.S., 2022
