Investors can save up to 40% on wealth management fees, according to consultants

News - Funds

Written by Ray Clancy

Thursday, 08 July 2010 10:27

The cost of wealth management is the single biggest lever an investor has to increase the performance of his or her portfolio, it is claimed.

If a client pays 2 to 3% in direct and indirect fees to his wealth manager per year but could cut this by half, his returns can increase by more than 25% after 20 years, according to MyPrivateBanking, an independent consultant to wealth management clients.

It has launched a new service to assists clients of wealth managers by fully exploiting their scope for cost reduction and re-negotiation of their fees.

Research by MyPrivateBanking shows that the majority of clients lack the experience, time and knowledge to reduce their wealth management costs significantly. For their part, wealth managers, in addition to the direct, visible, fees, have various additional levers to influence costs of wealth management in the selection of products, number of transactions or choice of partners, it says.

‘The direct and hidden costs can easily add up to 2% to 3% of the assets per year, thereby eliminating about half of the annual profits a normal balanced portfolio will achieve on average in the long-term,’ said Steffen Binder, managing director of MyPrivateBanking.

‘We will help clients in identifying the portfolio costs that are really necessary and negotiate a better deal without hurting performance at all,’ he added.

It requires an understanding of all the cost drivers, knowing the benchmarks in terms of what other clients are paying for similar services and the ability and experience to re-negotiate fees, the company says.

The new service aims to identify savings potential by carrying out an analysis of all costs related to wealth management services and the portfolio such as management fees, transaction fees, custody fees and hidden fees in order to create transparency and gain a full understanding of the cost savings potential.

It will also undertake benchmarking by doing a comparison of the fees paid with those of peers to determine the maximum a client should pay and initiate a beauty contest with several wealth managers.

Challenging the current fee agreements with the wealth manager and also the proposals of other providers will give a better deal along with assistance in setting-up an agreement under the new terms.

‘On average we cut the costs of wealth management for our clients by 40% per year, ‘said Christian Nolterieke. ‘The re-negotiation service is performance based and self financing. A part of the fees and commissions saved will be attributed to our services,’ he added.