Evidence shows that the wealthiest investors can be the most price sensitive. What does that mean for financial planners today?
Discount stores Aldi and Lidl have grown rapidly in recent years, benefiting from increased price sensitivity in the post-financial crisis era.
But you might be surprised to learn that research in 2015 found that 45% of upper and middle income households had been to either Aldi or Lidl in the previous three months, the same proportion as lower income households.
There’s evidence of a price-sensitivity dynamic amongst the wealthy in financial services too.
A survey of 3,000 high net worth investors by Scorpio and NPG Wealth Management revealed that the wealthiest were the most likely to want to shift from a percentage fee when paying for advice to a fixed (flat rate) or time-based fee.
Around a third of ‘ultra-high net worths’ with assets of at least £6.5 million paid on a percentage basis, but just 20% wanted to continue doing so.
The logic of flat rate fees for wealthier investors is clear. Their fees stay the same no matter how much they invest or how much their investments grow.
In contrast, someone paying 1% a year on £500,000 - £5,000 a year - might naturally wonder if they’re really getting a service worth 10 times more as someone paying the same provider £500 a year on £50,000.
Financial planning may be more complex when it comes to the wealthier investor, with more work potentially involved. For this kind of service, price differentials compared to smaller portfolios make sense.
Can the same be said for a platform service?
We don’t think so.
Charging someone more for the same service as their pot grows is nothing other than a tax on their wealth. And it’s a tax you can avoid for your clients by using a flat fee platform like Alliance Trust Savings.
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For investment professionals only. This document should not be communicated to, or relied on by, retail investors. Please remember the value of your investments and any income from them can go down as well as up and you may get back less than the amount you originally invested. Past performance is not necessarily a guide to future performance.
We’re an investment platform with a difference. We charge flat fees based on your client’s specific engagement with our platform; nothing more, nothing less. That can equal a very competitively priced proposition, yes, but more importantly to us, it’s fair.
Since re-platforming in early 2016 we also now work on the same technology as many of the platforms you already use. This means we can pass on the potential benefits of a flat fee to your clients without you having to make any compromises to the functionality, features and service that you value and need - including one of the industry’s widest ranges of Investment Trusts and ETFs.
Most platforms try to satisfy all investors, we don’t. We’re clear that we can be incredibly cost-effective for the more affluent investors. Flat fees provide us with a scalable model that supports growth whilst avoiding a long tail of legacy clients with administrative costs that simply wouldn’t be covered by - often very low - percentage based charges.
We’re Alliance Trust Savings, the platform for smart flat fee investing. We’re not like all the others. We’d love to talk more.
alliancetrustsavings.co.uk/adviser