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Wealth managers and clients differ on definition and importance of independence


According to research released by SEI (NASDAQ: SEIC), in collaboration with Scorpio Partnership, while nearly three out of four (72 per cent) investors regard "independence" as important or somewhat important, many investors believe that independence in a wealth industry relationship remains more a hope than an expectation.

At the same time, nearly all (93 per cent) US wealth management providers and 87 per cent of all respondents, globally, consider achieving independence a business-critical issue.

The findings are part of "Independence: The Right Standard," the second report in a series of five topic of interest papers examining the changing relationship between wealth managers and investors in the global market.

The report uncovers that the divergent views from investors and wealth managers on independence likely stem from the lack of a standard definition of the word. Among wealth management providers, nine distinct aspects emerged. Yet, the importance that managers place on these aspects varies greatly. When asked how they demonstrate independence to investors, ‘no product pushing’ emerged as the top choice among wealth managers, with 28 per cent selecting it. Other aspects of independence, according to those polled, include open architecture (21 per cent) and business controls (16 per cent).

Asked the same question, investors had a different emphasis, preferring wealth managers build independence into core strategy and placing top importance on business controls (32 per cent), open architecture (20 percent), and client-centric advisory process (16 per cent). Interestingly, ‘no product pushing’ received a nominal number of votes by investors.

"In our current investing environment, clients are placing increased emphasis on the concept of the ‘trusted advisor,’ with independence taking a central role. It’s encouraging that both sides place great value on independence, but there is a clear difference in opinion on the best course of action and the probability of wealth managers attaining full independence," says Jim Morris (pictured), Senior Vice President for SEI’s Global Wealth Services. "With this research in hand, wealth managers are now better equipped to bridge this gap. They are well positioned to improve their relationships by delivering a clear strategy for accountability, corporate controls, compensation and commissions — one that is aligned with what investors truly want."

The report did find that investors understand that establishing and consistently delivering independence is not easy for wealth management providers. And investors do realise that fees and commission on product selection are an impediment to achieving independence. Very few investors and even fewer wealth managers polled are calling for a solution where investors pay advisory fees. However, the research points to shareholding structures, reporting lines, and internal fee-sharing agreements as possible steps wealth managers can consider taking to achieve lasting independence.

Morris, and Sebastian Dovey, Managing Partner of Scorpio Partnership, recently co-presented research from the topic of interest series and from the recently released Futurewealth Report at the ABA Wealth Management and Trust Conference on March 7, 2011.

The findings of this paper are the result of a series of in-depth interviews comparing the views of 250 private clients and wealth management providers, including banks, independent trust companies, and investment advisors, on the issue of independence. The purpose of this research is to gain insight into the importance of independence to both groups and its definition in the context of a financial advisory relationship.

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