A report released this week examined how the next generation of UHNW wealth management clients currently pay their advisors and how they would like this to change in the future.

Financial advisors may need to offer more flexibility around fees in the years ahead, as the next wave of UHNW clients seek to refine how they pay for services and redefine how they value those services, said Kevin Crowe of SEI, speaking about a new report on wealth management fees.

The report, called Recalibrating Value in Wealth, is based on the views of 3,113 emerging wealthy individuals globally – the UHNWIs of tomorrow – with an average net worth of $2.7 million. The report is from SEI, Scorpio Partnership and NPG Wealth Management, and is the fourth and final paper in a series looking at data from The Futurewealth Report 2015. It notes that most next-gen UHNWIs strongly agree that they are receiving high-quality value for money in wealth management, but that how they would like to pay for these services in the next five years or so will shift to more "predictable" fee formats.

The current most popular choice of fee structure among US respondents overall is a traditional fee model – a percentage fee based on advised assets. When comparing preferences for fixed-fees versus time-based (or hourly) fees there is today, however, a generational divide, according to the findings. It emerged that preference for a fixed-fee model decreases with age, as reported by 22 per cent of those aged 40-49, 10 per cent of those aged between 50 and 59, and only 5 per cent of those aged 60 and older. Similarly, although 16 per cent of younger individuals prefer a time-based fee model, just 4 per cent of their older counterparts (aged 40 and above) prefer this option.

Thinking ahead, respondents will seek more predictable fee formats over the next few years, such as time-based and fixed-rate structures – primarily to better reflect their engagement with a firm (when they will likely have more assets), the report said. Over two-thirds (72 per cent) said they do not want to pay for services using a percentage of their current assets within the next five years (although 40 per cent currently do), for example. While 14 per cent currently pay using a fixed-fee format, 18 per cent indicated that they would prefer this payment approach in the future. Additionally, while 5 per cent currently pay using a time-based structure, 7 per cent said they would like to pay with this structure in the future.

“There is a strong sense from the research that the world’s UHNWs are questioning whether the fees they pay are in line with the service they receive from their wealth advisors," said Marc Stevens, chief executive at NPG Wealth Management. "Clearly, many of them think they should be getting more value by using different payment structures."

While the Futurewealth report is based on the views of individuals not quite in UHNW territory, it is interesting to place these findings against a study last month which found that the growing financial complexity of wealthy families’ lives is making it tougher for multi-family offices to set fees at the appropriate levels and for families to make comparisons. The Family Wealth Alliance said MFOs believe client complexity has become the number one factor in both determining overall pricing policy and in setting fees for individual client families.

Meanwhile, the Futurewealth report also said it found that younger individuals believe they need more guidance and information to make better investment decisions to a larger extent than their older counterparts (50 per cent versus 25 per cent respectively). It also found that respondents generally have “strong opinions” about how fees should be distributed within a wealth management organization. Somewhat unsurprisingly, they overwhelmingly focused on allocating fees to their relationship manager (40 per cent), with the rest going to the firm (20 per cent), internal specialists (14 per cent), supporting technologies (13 per cent) and support staff (13 per cent). There was also a generational divide with preferences around allocating fees toward technology, with younger respondents choosing to allocate nearly a fifth of their total wealth fee to supporting technologies, compared to 12 per cent of those over the age of 40.

"It is clear that the value the new generation of future-wealthy is receiving from their advisors has a significant impact on their engagement with a firm," said Crowe, head of solutions at SEI Advisor Network. "As advisors adapt to new generations of future-wealthy, they will need to offer more flexibility in how they deliver value, as clients are now seeking to refine how they pay for advisory services going forward and redefine how they value those services."