Due Diligence

Fees on High-End Wealth Management Falling

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Banks are hoping that managing wealth for the very rich will plump up their profit margins, but margins on high-end wealth management are getting squeezed, writes The Economist this week. Before the financial crisis, private banks generally earned revenues of 1 percent on client assets. This translated into a margin of about 0.35% of client money under management. But fees on service in the wealthiest countries have fallen some 10 to 20 percent since 2007-2008, the magazine writes. “This is partly because the wealthy demurred at paying through the nose as they watched their assets plunge along with everyone else’s. Many of them also moved their money out of risky or complex investments to safer ones such as government bonds or cash, which promise lower returns and generate much lower fees.”

Wealth managers also face growing competition from family offices, whose in-house investment managers bargain hard when it comes to fees, as well as boutique specialist firms and fast-growing domestic banks in emerging markets. And then there are the online competitors like Wealthfront, MarketRiders and Personal Capital, based in California, which use technology to build customized portfolios for a fraction of what traditional advisors charge. These last are the “biggest threat,” according to The Economist, which calls them “hungry innovators,” who are “trying to cut the cost of investment advice and wealth management drastically.”

For the full story in The Economist, click here.

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