Diary of a Private Banker: By cutting charges, will Coutts unleash a private banking price war?

Freddie Pooter, 18/09/2020

Peter Flavel, NatWest's chief executive for private banking / Photo: Supplied

Well, what to make of the initiative by Coutts & Co to cut advice costs with a new fixed fee structure, one that takes it down nearly to those charged by the robo-advisers.

Coutts clients will now be charged for advice with two fixed fee structures; previously fees were charged as a percentage of assets under management. These will now consist of one-off £2,000 fee levied for investment advice and one-off £5,000 for financial planning (plus VAT). The wealth manager and private bank operations at Coutts also remove implementation fees.

Yes, Coutts can fairly claim to be taking out the “add” in ad valorem.

The knee-jerk reaction was to regard this as an aggressive move to grab market share, even if it provokes a price war among private banks.

It was also regarded as an initiative to undermine notorious high-cost investment providers like Hargreaves Lansdown and St James’s Place.

Steady on. There is certainly no head-on intention by Coutts to take on SJP and the like. For example, the average customer at SJP has less than £200,000 under management – versus the £1 million plus threshold at Coutts.

In fact, Coutts is rather evangelical about the whole idea. This, dear brethren is more about “the right and fair way” to charge for financial planning advice, rather than kicking the high-priced usurers out of the temple.

OK, but surely this is going to have far-reaching implications for the fees and charges of the wealth advisory business overall?

The view from 440 Strand is the wealth industry has got itself used to charging a set percent of client assets under management. That implies that a plan for, say £2 million is twice as complex as a plan for £1 million. So, a nice gravy-train for the advising bank but not for the client.

It’s better and fairer to charge a flat fee as Coutts is planning, the argument goes. Under the bank’s approach, clients will obviously pay a proportionately a smaller fee the larger the assets they want managed.

So no “hot” price war at yet, but border skirmishing over fees is certainly in prospect.

“The knock-on effect may be that clients will start asking their current providers why they are charging a percentage of AUM,” my 440 confidantes whisper from the confession box.

The fee move follows NatWest Group’s decision t...

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