Total expense ratios (TERs) of 240bps for a combination of adviser fees, discretionary management charges, platform costs and fund manager fees are "unsustainable" and will likely be driven down, Schroders head of UK intermediary Robin Stoakley has said.
Speaking at a conference in New York, Stoakley (pictured) revealed research carried out by Schroders polling 328 investment advisers, which suggested that 32% charge clients an average of 100bps or more in client agreed remuneration, which he branded "a bit rich", especially when added to the other charges clients will have to foot the bill for.
The research suggested the majority of the advisers asked - 68% - charge between 50bps and 75bps.
In terms of how they charge client fees, about two thirds of the advisers said they charge a combination of percentage of assets under advice, hourly fees and fix fees. Just 2% charged only a fixed fee, 3% used hourly fees alone and 37% charged solely as a percentage of assets under advice.
Elsewhere, the study looked into advisers' appetite for outsourcing the investment management of clients' assets.
It found that 60% do not outsource at all, while 15% outsource up to 10% of their clients' assets, 8% up to a quarter, 7% up to 50%, and 10% outsource over 50% of clients' assets to an external investment manager.
The majority of those assets are outsourced to either a wealth manager or a platform provider-linked manager, with a smaller portion given over to multi-managers.
About two thirds - 62% - of the advisers polled said they have increased the amount of investment business they have outsourced this year, up from 51% last year. The vast majority - 87% - said they will continue to outsource portfolio management.
Stoakley also said that the research pointed to advisers "making their businesses slicker", with 58% segmenting their clients by size or resource, and 89% offering different levels of service based on size or revenue.
However, the findings also suggested this trend is leading to what many feared would be the major unintended consequence of the Retail Distribution Review - which came into force on 1 January -, a substantial increase in orphan clients, with 14% of the advisers polled saying they have formally asked small clients to leave their practice.
Three quarters of those asked to leave have assets of below £50,000, a group Stoakley said will not be taken up by bank or insurers' advisers.
The research also looked at platform use. Skandia topped the rankings for preferred primary platform, followed by Cofunds and Standard Life. Skandia also beat the competition for favourite secondary platform, followed by FundsNetwork and Cofunds.
Advisers were also asked about their use of passives. Two thirds use passives for client portfolios, which Stoakley said is a strategy often employed to keep costs down for clients.
A little over half of those advisers polled said they have 10% or less of clients' assets in passives, with a third saying they have between 10% and 25% in passives, up from a quarter last year.
Two thirds of the advisers asked have increased their use of passives this year, however just 25% expect to increase the proportion of client assets in passives, which Stoakley said "indicates we may be reaching a ceiling on passives".
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