Monday 26 September 2016

Wealth management services: targeting the 'mass affluent'?

John Cradden

Published 14/06/2015 | 02:30

wealth management
wealth management

The market for 'wealth management' services appears to be booming - judging by the steady trickle of news from firms like Goodbody, Davy and Barclays Ireland, all announcing expansions of their private client divisions.

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Goodbody Stockbrokers hit headlines last month when it poached no less than four senior people from its arch-rival Davy, to join its wealth management arm - the largest of its three operating divisions. It also bought BDO's wealth management business last year.

Davy has been attempting to add senior names to its own wealth management service, while also making some acquisitions in the space over the last few years, including Bloxham's private client unit in 2012 and Prescient Ireland (former AIB Investment Managers) in 2013.

Barclays Ireland, which focuses on wealth management and corporate banking, has also expanded its operations, boosting its customer deposits by some 42pc last year to €1.64bn.

So it's big business.

A report from Credit Suisse a few months ago revealed that some 41pc of the Irish population have wealth of between $100,000-$1m, with 2.6pc (or 91,208 people) now classified as millionaires.

Wealth management used to be the preserve of the private banking arms of the big banks or specialist financial advisors, but stockbroking firms now own a big chunk of the market. But is there any hint that their wealth management services are diversifying in order to capture the 'mass affluent' market?

Jon Ihle, head of communications at Goodbodys, said that its financial planning division is the newest part of its wealth management business - and the one with the most potential.

"Instead of just executing investments or stocks or funds or bonds, we're also advising them on the structure of their pension, how they might put their property into a life insurance policy so that their kids can inherit without having to pay taxes.

"So that type of financial planning, how you structure your finances and not just how you growth your wealth, is really where we see a huge opportunity for a business like ours."

A typical wealth management client tends to be in their 50s and with investable assets of more than €250,000, but offering a financial planning service is also a way to build a relationship with young high-income professionals before they have accumulated any significant wealth.

"When it comes to financial planning, it's less about how much you have in assets and more about what your income profile and your income potential is," said Ihle.

Davy also provides financial planning services, including through its online investment and pensions brand, Davy Select. Adam Cleland, head of portfolio construction at Davy says: "I think we're very good at stockbroking and can do it effectively, but for a long time we have provided a lot more."

Given the breadth of services now available under the wealth management banner, analysing the fees and charges might be tricky - but, according to at least one financial advisor, using stockbroking firms to manage your wealth should still come with a financial health warning.

Bob Quinn of Kildare-based The Money Advisors, says stockbroking firms have changed how they charge fees over the last few years, but there is still an inherent conflict between a wealth management service and the work of stockbrokers because they get paid every time they buy and sell assets or shares on behalf of clients.

As active investment managers, stockbrokers will never take a 'buy and hold' approach, he said.

"Here's the kicker," said Quinn. "Some 80pc of active investment fund managers fail to achieve average returns from the market - because with all the chopping and changing, the selling and the buying, they are incurring transaction fees and charges on behalf of their clients.

"By the time you factor in any gains you might hope to make and offset that against those transaction fees and charges, you've actually done worse than a diversified, long-term approach to investing."

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