Outsourcing by financial advisers helped drive growth in the wealth management market last year, but higher client withdrawals present a challenge, new research reveals.
Platforum’s UK Wealth Management: Market Overview report shows that new money entered the market in 2024 from financial advisers either outsourcing more of their investment management or outsourcing for the first time. Half of advisers surveyed reported that their firms used outsourced model portfolio services for at least some of their clients, compared with 27% using in-house advisory model portfolios.
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Platforum sizes the discretionary wealth management market (excluding private banks) at £1.1trn at the end of 2024, up 11% year-on-year.
Investment performance was a primary driver of growth, with the MSCI PIMFA Private Investor Balanced index returning 10.73% for the year.
M&A also helped bring new assets in the wealth management space, as firms continued to buy up financial planning businesses. The report said wealth managers regard financial planning services as a major growth opportunity, and some are keen to buy distribution for in-house investment solutions and services.
Client withdrawals higher than usual
While the research found that growth was positive overall, wealth management firms face some challenges. Some report higher-than-usual client withdrawals thanks to ‘Bank of Mum and Dad’ behaviour, with clients helping family members onto the housing ladder, to pay off debt or pay school fees.
Annalise Toberman, associate research director at Platforum, said: “On the whole, wealth managers delivered decent asset growth in 2024. Private equity funded advice firm acquisitions certainly helped, as did the continued rise of model portfolio services – some dedicated providers comfortably enjoyed double-digit percentage growth.
“Yet wealth managers tell us that elevated client withdrawals continued to be an issue. while higher interest rates have increased the attractiveness of cash savings short term, firms are also grappling with an ageing private client base and changing IHT rules that will ultimately mean more gifting to family, less money left invested.”
Bespoke services bump up against Consumer Duty
Within bespoke portfolio management, Consumer Duty and the emphasis on value for money has led some firms to review whether a full bespoke portfolio service is appropriate for clients currently receiving this. Platforum said about 11% of wealth management market assets (excluding private banks) sit in intermediated bespoke portfolios, meaning wealth managers running bespoke portfolios on behalf of financial advisers’ clients. This pool of assets is increasingly being challenged by the popularity of lower-cost model portfolios, the research found.
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Nearly one third of advisers said serving high-net-worth clients was the main reason for using wealth managers’ bespoke portfolio services. Almost a quarter said client demand for personalised services was most important, while 19% pointed to access to a wider range of investment opportunities.
“Bespoke portfolios have a place, particularly for managing capital gains tax or specific income or ethical requirements – standardised portfolios can fall down here,” continued Toberman. “But the thinking on bespoke is changing. A very wealthy client may have relatively simple needs and have all their assets neatly tucked away in tax wrappers, meaning a model portfolio could be most suitable for them. It’s about the complexity of a client’s situation, which can correlate with level of wealth but doesn’t always.”
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