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Better Business Value

Cost of Investment Ownership – The New Scrutiny

By 28 October 2016November 7th, 2022No Comments

Globally we are seeing intense margin pressure on all aspects of the wealth management and investments industry. With many seeking margin relief from packed funds into transparent portfolios, one of the next items on the block for scrutiny is the cost of actually holding an investment asset, as opposed to the cost of management of asset portfolios.

Increasingly advisers are becoming  obliged to consider not only the suitability of an investment asset, but also the cost of their client owning such an asset, and this is being scrutinised (as it should be) in detail. Some of the components of owning an asset being:

a) any costs associated with owning the asset via a third party nominee or custodian

b) any ‘costs’ associated with administering the asset – ie whether it needs paperwork lodged, elections to be made etc

c) any costs associated with then the investor’s obligations to authorities (tax offices) from owning that asset

d) any costs associated with effort to actually purchase or dispose of the asset (brokerage costs, buy/sell spreads, application costs etc)

e) other costs associated with the management of the asset (either explicit of hidden)  should it be a fund or collective investment vehicle

When looking at all these in combination, we are finding that increasingly that many wealth groups are starting to gravitate to assets that can be held at low cost (often a brokerage account), have diversification embedded but in a simple packaged form, and that require low amounts of administration.

With increased obligations on wealth advisers to either act in the best interests of their clients, or even as a fiduciary (as in the USA in 2017), I suspect we will find further scrutiny in these areas, and I guess no suprise in the growth of exchange listed funds around the world.

As many firms are working out, the less costs that clients incur in owning assets, the more margin and client servicing can be provided to clients for the same price point, ultimately which can differentiate their service proposition.

Stuart Holdsworth

Author Stuart Holdsworth

Stuart has over 30 years of experience in the use of technology for the strategic competitive advantage of businesses in the financial markets and investment industry.

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