The annual Nucleus census – What’s in the gift?


For many years I’ve had the pleasure of penning some thoughts on the annual Nucleus Census to highlight some of the key points. Receiving the Census is like guessing what’s in a gift – shaking the box to work out if it is going to contain something familiar or a complete surprise. Often the Census contains both, with some familiar but reassuring data and some surprises. This year was no exception and with this in mind, I’m going to focus on three key areas:

  1. Client numbers
  2. Investment propositions
  3. Adviser charges

1. Client numbers

Average client numbers per adviser have increased from 130 to 161 with 38% of clients (the largest segment) having investable assets of between £100k and £250k. Overall, investable assets have increased.  While this is likely to be largely due to the recovery in markets it also suggests that many advisers are continuing to focus primarily on higher value clients rather than the less wealthy next generation.

I still firmly believe that advisers need to address the challenge of younger clients to facilitate wealth transfer and retain assets within the business.  As the survey indicated that 75% of advisers want to further increase client numbers next year, perhaps they might start looking at different demographic segments to help achieve this.

On a positive note, 28% of advisers reported spending more than 40% of their time with clients (new and prospects).  This is a significant increase from 18% last year and could account for the increase in average client numbers. The new online world is likely to have played a role in facilitating this shift.  With the reduction in travel for client meetings, engagement can be less time consuming. Perhaps there could also be opportunities to create more tech based propositions to target new clients segments.     

2. Investment proposition

Financial advisers are still using a variety of investment options. 61% are using Model Portfolio Services (MPS) from DFMs, 29% are using MPS from third parties such as research businesses, 56% are managing their own models on an advisory basis and 11% are doing this with their own discretionary permissions.

It’s interesting to note that those using their own advisory models allocate the greatest amount of their assets to them (71%). However, over a quarter of advisers using advisory models said they would decrease usage in the next year with corresponding shifts towards DFM models and third party models.  Over 30% of advisers said they were going to increase their allocation to each solution.

Why is this? The main reasons advisers cited for outsourcing the investment decision were access to investment expertise, time and resource savings and diversity of investment approach. This aligns with the conversations I have had recently with advisers who faced challenging times throughout the pandemic when the market was extremely volatile. Significant time was spent with clients, managing their concerns and explaining market conditions and the impact on investments. Clients who sat tight and remained invested are likely to have been rewarded by the bounce in the market but many advisers felt that working with investment experts would have helped throughout this time.

ESG and sustainable investing is another area where many feel that access to investment expertise is required. Only one in 10 advisers believe that more than 50% of their clients want to invest in this way but the challenge here is educating clients and framing the conversation appropriately.

The census highlighted the broad areas of ESG which are most important to clients. Environmental factors were cited by 83%, social factors by 39% and governance by 1%.

The focus on environmental factors is no major surprise but the lack of focus on governance is a significant challenge. Companies with good governance surely perform better and in many respects this should be a key factor for clients. As an industry, we need to vastly improve the way in which we explain this to clients and support advisers with conversations around stewardship and engagement. Specifically at Schroders, as an active manager, this factor is of key importance when we decide to invest in a company and client reporting needs to demonstrate our engagement and the positive value this creates.

41% of clients would also not be prepared to sacrifice any return if investing sustainably – why should they? We need to get to a point where the question isn’t even asked as it feeds a deeply embedded view that sustainable investing attracts a performance drag. The industry has to  demonstrate that ESG analysis in addition to the usual financial and risk assessments can only contribute to improved returns as the companies in which we choose to invest have a broader lens applied to them when asset managers are choosing to invest.

3. Adviser charges

Here’s the surprise! Only 8% of advisers taking part in the census said that they offer a combination of fixed and percentage asset charges. This has reduced from 34% last year where I commented that advisers were moving to a more blended approach to fees.

In addition, 84% of advisers indicated that they charge on a percentage of assets basis which is an increase from 49% last year.

We could have an endless debate on these shifts and probably reach no significant conclusion other than ad valorum charging remains the predominant method in the market – but others are available!

Over the last few years I have also tracked the average ongoing client charge with the team at Nucleus. This has reduced to 0.8% and now reached a plateau. As clients are prepared to pay for this then perhaps a move to fixed fee isn’t required?   

I will sign off with the challenges for next year which were identified as:

  • Business growth and improving efficiency
  • Regulation

 It will be interesting to see if these deliver any gifts in the 2022 census!