Financial turmoil gives investors good opportunity to challenge advisers’ fees

A shock is often a catalyst for change, and the bigger the shock the bigger the eventual changes. With the Covid-19 pandemic rocking the global economy more fundamentally than any disturbance since the second world war, its impact is likely to range far and wide.

Wealth managers too will be forced to adjust, even if leading advisers have been playing down the structural implications. Top wealth managers have been quick to declare that the turmoil has highlighted their strengths — especially in providing rapid advice to clients caught in unexpected market gyrations. UBS, the Swiss bank, published a report this summer on family offices showing how its wealthiest clients — with an average of $1.6bn in assets — had navigated the spring market storm well. By implication, they were helped by timely advice — a clear sign of the value of such personal assistance.

But a more sober view of the virus’s impact is painted by Capgemini, which warns that wealth managers face an “uncharted post-pandemic world without a playbook”. The upheaval may drive clients to question the value for money of advisers’ services, the consultancy says in a report. It finds that 33 per cent of those with more than $1m in investable assets disliked the fees they paid in 2019. The poll, of more than 2,500 investors, establishes that about 20 per cent plan to change their primary wealth manager in the next year. As well as fees, they complained about a lack of personalised information.

In the report’s most significant warning to traditional managers, 74 per cent said they would consider services from new automated advisers, notably big tech groups such as Google and Alibaba — or 94 per cent among those who said at the start of the year they might switch primary wealth adviser in the coming 12 months. “Wealth management firms have little choice but to enhance digital customer engagement — quickly,” warns Capgemini.

Joe Stadler, head of the global family office unit at UBS, said tech companies posed the biggest challenge at the retail end of the market, in services for people with $1m or $2m to invest. “That part of the market could be at risk but this is not the core market of UBS.” That may be true. But even UBS is not immune. Another piece of its research found UK-based investors with less wealth than its top clients — between $250,000 and $1m — had been financially discomfited by the crisis. Three in four anticipated permanent lifestyle shifts.

UBS did not ask those surveyed about tech-based services or changing advisers. But the Capgemini study makes clear that clients who are unhappy about their assets shrinking tend to raise questions about advisers, services and fees. Of course, there is still plenty of opportunity for private banks and other established advisers to rise to the challenge. The incumbents have huge advantages in terms of experience, contacts and market knowledge. But they need to recognise more clearly that adopting technology is not only about speeding processes, cutting costs and managing data. As Amazon and Alibaba have shown, it is also about tailoring services to clients in unprecedentedly effective ways. As an Italian banker quoted by Capgemini says: “Amazon’s suggestions are not perceived as aggressive marketing practices, since they are so intelligent and so close to our needs.”

Private bankers like to say that everything depends on knowing the clients really well. But what happens when machines develop Amazon-like levels of client knowledge? When clients can perhaps no longer tell the difference between advice from a human executive and a machine? The industry may still be a few years away from its own version of the Turing test, the widely applied yardstick of human-like intelligence in computing. But it is high time to prepare for that eventuality.

Stefan Wagstyl is editor, FT Wealth and Financial Times wealth correspondent. Follow Stefan on Twitter @stefanwagstyl

This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment.