Filed Under:Annuities, Fixed Indexed

Cerulli: Almost a Third of High Net Worth Providers Have Increased Fees

Photo credit: Patpitchaya
Photo credit: Patpitchaya

In the past three years, nearly a third of financial service providers to high net worth investors have increased their advisory fees, new research reveals.

Cerulli Associates, Boston, published this finding in a report released this week, “High-Net-Worth and Ultra-High-Net-Worth Markets 2011.” The report examines client demographics, vehicle usage, distribution strategies, advisor retention and technology trends. The report’s data is based on four surveys of asset managers, high net worth investors, HNW providers, chief investment officer outsourcers and bank trust providers.

The report shows that 32.1% of all HNW providers increased their fees during the last three years. Four in 10 of this group includes registered investment advisors and multi-family offices. And 23.1% comprise private client groups and bank trusts.

Of the remaining HNW providers a bare majority (50%) have kept fees level over the past three years. And 17.9% of providers have decreased their fees.

At 47.1% or nearly $2.2 trillion as of year-end 2010, traditional private client groups control the largest percentage of assets held by HNW providers, surpassing wirehouses as the largest provider. The total for wirehouses is $2.1 trillion or 45.2%. Multi-family offices rank third at 7.8% or $356 billion.

Financial planning is the primary planning service of 82.8% of HNW providers, followed by estate planning at 69% and risk management and insurance at 31%. In respect to investment services, the report discloses that asset allocation is offered by all providers, followed by traditional manager search and selection at 89.7%, alternative manager search and selection at 72.4%, risk modeling at 71.4% and internally managed hedge funds or fund of hedge funds at 21.4%.

Chief investment officer outsourcing—the delegation of portfolio management to an outside firm—is most widely used for oversight of endowments and foundations, the report finds. Of the HNW CIO outsourcing firms surveyed, these entities accounted for 40.2% of assets, followed by single family offices at 22.5%, HNW individuals at 13.3%, public defined benefits and private defined benefits at 9.9% and 8.1% respectively, multi-family offices at 2% and “other” at 3.9%.

More than half (56%) of HNW providers are using more 1940-Act mutual fund with hedging strategies than was the case one year ago, the report finds. Of this group, private client groups are the largest users of hedging strategies at 75%, followed by multi-family offices and registered investment advisors at 38%.

In three years, the report discloses, one in five HNW providers (20.3%) plan to use alternative asset allocation strategies, up from 17% today. By contrast, the use of equities is expected to decline over the same period (46.3% currently versus 44.9% in three years) and fixed income assets (30.8% versus 30.1%).

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Nichole Morford

Nichole Morford
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