The financial turbulence unleashed by the pandemic has prompted clients of wealth managers to scrutinise not only the performance of their investments but also the value of the services they pay for.

With many people having more time on their hands in lockdown — particularly those of retirement age — market volatility has given them a motive for reassessing their finances, including the charges for managing their portfolio.

“People this year are looking at the numbers much more closely. We’re having to spend a lot more time explaining the underlying figures on costs and charges,” says Duncan Stratford, head of the UK front office at wealth manager Canaccord Genuity.

“Clients have had more time, more ways to engage with us and more reason to engage with us,” says Ben Waterhouse, managing director at Barclays Wealth, citing performance as well as concerns over potential changes to the tax regime in the post-Covid period. But on costs, he says, “the conversation is much more around value than the fee level”.

Wealth managers prefer to talk about “value for money” over fees and charges, because they say a crude focus on fee percentages ignores the role of investment performance. A customer can pay more but benefit from higher returns. Another reason is that wealth managers adopt a wide variety of fee models for services, making like-for-like comparisons problematic — something the Financial Conduct Authority, the industry regulator, has said needs to change.

So how do most managers apply charges? Typically, they will use a so-called ad valorem model, charging an annual percentage of client assets.

There is also commonly a series of tiered rates: the more money a client brings into a firm, the lower the annual fee. A typical tier system might charge 1.5 per cent on a managed investment portfolio up to £500,000, 1.25 per cent between £500,000 and £1m and 1 per cent between £1m and £5m.

The difference between, say, 1 and 1.5 per cent may seem minor, but over long periods can add up. On a £500,000 pot that makes no investment gains or losses over 10 years, for instance, the difference would be more than £22,000.

At higher levels of wealth, customers have, since before the pandemic, successfully pressed many firms to drop their annual fee rate even further. Stratford of Canaccord Genuity says many clients had become more cost-conscious. “Almost certainly, anybody giving us large amounts of money will be looking for a cheaper rate and we have to negotiate and be flexible. That’s definitely become more common in the past two years.”

Clients with £5m or more are likely to expect a dialogue on rates. Stratford says: “You have clients who know the market and will go to three or four different people and play you off against one another — and are very effective at doing it.”

Financial advice and planning may be charged for in a similar way, with clients paying an extra annual fee for access to advisory services at their convenience. Often, though, clients may pay for this as a one-off fee. A wealth manager will “cost up” a specific piece of work, such as advising on a pensions transfer or an inheritance tax liability — based on the time taken for a planner to complete the work, charging by the hour.

Firms may also offer execution-only investment services, where customers make their own decisions on stocks and shares but these are administered through the manager. Others may propose “model portfolios”, which reduce costs by selecting a pre-designed portfolio on the basis of a client’s risk appetite.

Over the past decade, regulators have brought in measures that increase the transparency of costs and charges for customers. Wealth managers must give clients an annual statement that includes not only their own fees, but the elements over which they have little or no control: the fees charged by third parties such as external fund managers. But while these documents give clients a sense of how charges change from year to year, they do not yet always allow them to make like-for-like comparisons between firms.

Some report performance net of fees, others gross. Some supply a fee tariff, but not platform or custody fees. Stratford says the industry would welcome the regulator imposing a set format. “There’s a lack of consistency. Although there is much better transparency, people are still interpreting things in different ways.”

So even after decades of debate, wealth managers stick to the ad valorem model. Michael Martin, private client manager at Seven Investment Management (7IM) says the main alternative — a flat fee — would generate its own problems: to keep up with inflation and the firm’s costs, it would normally go up annually.

But in a year in which markets and portfolio values fall, clients may wonder why fees are rising. “Why aren’t there more fixed fee managers? I just don’t think clients are ready for what happens in the bad times,” he says.

Managers argue the percentage fee model means that when markets fall, the firm’s revenues dive too — aligning the incentives of manager and client. Jason Hollands, managing director at Tilney Smith & Williamson, says: “The business takes the pain alongside the client.”

However lively their conversations with clients over fees, most businesses do not think lower-cost alternatives such as robo-advisers pose a threat to their future. Just over half of wealth managers questioned by research company Savanta for FT Money said they were “not concerned” about clients moving to low-cost providers — and the rest were only “slightly concerned”.

Martin of 7IM believes that if advisers are open about costs, few clients balk at paying. “The problem is if they don’t know what they’re paying or discover later on it’s not what they think they’re paying. They don’t mind paying fees but they want to know what for.”