High net worth (HNW) individuals in Singapore, US and UK are more likely to opt for discretionary mandates above other services, according to financial services research and insight firm Verdict Financial.
The company’s latest report analyses the demand for discretionary asset management – as well as factors fueling interest in such services – of HNW investors in 17 countries covered by Verdict Financial’s 2016 Global Wealth Managers Survey, although robo-advisors are proving to be an increasing route for millionaires placing investments in the future.
Although 52% of millionaires’ investable assets are managed on a discretionary basis globally, the level of interest in such services varies significantly between markets, with Singapore, the UK, and the US the most reliant on discretionary services.
Bartosz Golba, acting head of wealth management at Verdict Financial, said: “HNW individuals in Singapore, the UK, and the US have an average of more than 70% of their portfolios placed in discretionary mandates – the highest share across the globe. These are all developed markets, where the uptake of discretionary asset management is generally higher than in emerging economies.
“Such services are a perfect match for clients lacking the time and expertise to manage their investments, both major factors driving demand for discretionary mandates. However, trust plays an important role as well.
“Investors will be skeptical about giving up control over the investment decisions to advisors they do not know well and do not have a relationship with,” he said.
Verdict Financial’s research shows that discretionary portfolio managers will also experience competition from digital providers, which have traditionally been conceived as appealing mostly to self-directed investors.
“Wealth managers in developed markets have started to lean towards the view that digital players no longer compete only for execution-only business,” said Golba. “Indeed, in Europe many providers dubbed ‘robo-advisors’ offer a discretionary investment management service. They have clear fee structures which appeal to price-sensitive clients, though the lack of a recognized brand remains their primary handicap.”
According to the report, established wealth managers will try to leverage their relationships with existing clients to increase mandates penetration as discretionary services offer higher profit margins than advisory propositions.
“In this way, growing mandates penetration is at the centre of many providers’ strategies, one example being Citi Private Bank, particularly in the Asia-Pacific region,” said Golba. “For players with large client books, moving assets to mandated services might prove an easier way to grow revenue than competing for new clients.”