What Investors Expect from “Independence”

Research from SEI found nearly three out of four investors regard "independence" as important, yet many believe it is not a realistic expectation when dealing with wealth management.  

In contrast, nearly all (93%) of U.S. wealth management providers and 87% of all survey respondents consider achieving independence a business-critical issue. The findings are part of “Independence: The Right Standard,” the second report in a series of five examining the changing relationship between wealth managers and investors in the global market from SEI.

The report highlights divergent views from investors and wealth managers and suggests it’s caused by a 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 varied greatly. When asked how they demonstrate independence to investors, “no product pushing” was the top choice among wealth managers, with 28% selecting it. Other aspects of independence include open architecture (21%) and business controls (16%).

When asked the same question, investors had a different idea of independence. Respondents preferred wealth managers build independence into core strategy and placing top importance on business controls (32%), open architecture (20%), and client-centric advisory process (16%). 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 adviser,' 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," said Jim Morris, Senior Vice President for SEI's Global Wealth Services.

The report did find that investors understand that establishing and consistently delivering independence is not easy for wealth management providers. And investors realize that fees and commission on product selection are an impediment to achieving complete 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.

The survey consisted of in-depth interviews of 250 private clients and wealth management providers, including banks, independent trust companies, and investment advisers.

A full version of the report is available here.