Access to financial markets for all

How to successfully narrow the wealth gap in society through fair pricing for financial advice

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Wealth imbalance

Mean-Median wedge in USD

Democratizing access to financial markets

The inequality in wealth ownership worldwide is well documented. Numerous global wealth reports show year after year that this trend continues and there is no change in sight.

One simple way to illustrate this imbalance, i.e. “skewness”, is to observe how much wealth at least 50% of the population (so call median Median - Wikipedia) holds and to compare this with the average wealth in the population. If few people how disproportionately more wealth the difference between average and median will be large. Hence, the bigger the difference the harsher the imbalance between the lower and upper half of wealth owners in the population.

Although there is consensus about this trend - if only on mathematical grounds - there is no agreement on how to dampen the increasing wedge between those who have and those who struggle to build wealth. So far most of the discussion on mitigating this trend has focused on taxation, but we believe this is missing the point.

Pricing principles of wealth management today

a classic example of entry barriers

To understand better why

it is hard to build wealth for average income households we look at the pricing principles in wealth management today. Today's pricing is characterized by three major elements:

  • Fees as a percentage of your assets (so called ad valorem fees)
  • More wealth means cheaper access
  • Same management fee for all risk profiles
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Wealth after fees


Wealth development when investing 10,000 CHF per year

wealth path chart

Wealth loss due to fees

fee path chart

The trajectories are calculated over a time horizon of 30 years. The start investment is set to 10’000 units with further 10’000 units added in each following year. The annual return is assumed to be 6% per year. Fees of 2% are deducted from the wealth at the end of each year. The same is the case when assuming a 500 units fixed advisory fee per year.

Fees as a percentage of assets

Usually, the price for managing your wealth is given as % fee of the total wealth you have entrusted your manager. This means that the price in absolute terms will increase with the wealth that is managed. This so called “ad valorem” principle is often justified with increasing costs for managing larger wealth (diminishing economies of scale). The bottom line is that with your growing wealth your fees grow too even if your portfolio and investment strategy stays the same.

More wealth means cheaper access

Without touching the rationale for the so called at valorem fee principle it is more relevant to observe the widespread practice that % fees often decrease with wealth. Yes, you read right, the more wealth you have the cheaper is the access to wealth management as shown in the illustration on management fees. With few exceptions this price discrimination of low wealth investors is common, not only in Switzerland but worldwide for conventional and robo platforms.

Management fees

Data information

Management fee in %

wealth level chart

The information shown here is a compilation of multiple sources and is therefore stylized. We believe that provides the best and most comprehensive fee analysis for robo-advisors and general wealth management in Switzerland (see Robo-Advisor and Wealth management). For a more comprehensive international analysis, see Several consulting firms have published their own management fee surveys. A recent survey by Mercer or by EY provides detailed information on the development of management fees in the wealth management and asset management industry in general. A good overview of the type of fees in wealth management can be found on the CFA portal.

risk levels

Same management fee for all risk profiles

Depending on the suitability framework applied to each individual investor, your investment universe and strategy are predefined by your risk profile score. A low score or a conservative risk profile will limit your investments in risky assets compared to a high risk profile score. Does your risk profile affect your management fees? Interestingly, not at all in the robo-advisor space. While traditional asset managers seem to differentiate slightly, robo-advisors charge the same price regardless of your risk profile. Regardless of how high your investment risk is, it generally doesn't affect your asset management fee.

But what is a fair price to access capital markets?

a quantitative answer to a qualitative question

An investor will only consider shifting wealth from his or her perceived risk-free savings account into risk assets if the expected excess return to cash justifies the additional uncertainty. It is therefore useful to compare the excess return to cash across countries over a sufficiently long period of time. We do this via our top-of-mind portfolios for our five risk categories.

Returns and risks


Excess return over holding cash in %

excess raturns chart

Average loss year-over-year during severe market correction

average loss chart
Top-of-mind portfolios: Cash/Bonds/Equtities

The excess returns over cash are calculated across 10 major markets (Australia, Switzerland, Germany, Spain, European Union, France, Great Britain, Italy, Japan and the USA). The dataset used for the calculation extends between December 1979 and December 2020. All (arithmetic) returns and excess returns are calculated as the cross section average of all covered countries. For equities we use MSCI total return indices, for government bonds we use Datastream/REFINITIVE indices, while for cash we accumulate 3-month Treasury Bill interest rates over time to generate cash total return indices. In cases where sufficient length of government bond indices is not available, we extend the data (see Nyholm (2008), Strategic Asset Allocation in Fixed Income Markets) by approximating past price changes via changes in yields, coupon, duration and convexity.

If these excess returns were to materialize without uncertainty the answer would be simple and clear. An investor will shift wealth out of cash to a risky investment strategy if the expected return overcompensates for the average total investment cost (deposit, trading, product and management fees assumed in total 1.5% p.a.). For example, having access to a low-risk investment portfolio is not worth paying 1.5% given the historical excess return of 1.1% to cash. On the other side it is worth paying the same 1.5% for accessing a high risk (100% equity) portfolio that yielded historically on average 6.3% more than cash.


Unfortunately, these higher return portfolios come at the price of risk as shown in the average loss tab. For a 100% equity portfolio the average loss during severe market corrections was historically around 35%. For a risk sensitive (risk averse) investor a return of 6.3% above cash is worth less than for someone who is not or little sensitive to risk. How much less hence depends on the personal risk attitude. Scientific research has shown that people with more wealth, higher income and better education are more tolerant to risk while income uncertainty and age makes people less likely to take on risky bets.

With this background information in mind, we attempt answering the question of “what is fair” by estimating the so-called certainty equivalent. Behind this slightly cryptic expression of “certainty equivalent” lies the idea for finding a price that individuals are willing to pay in order to “stay safe” with their investments and avoid betting on risky outcomes. This “price of avoidance” can be seen as either an additional fee that is going to be different across risk profiles or as adjustment (sacrifice) to the excess returns that occur under uncertainty.

Accounting for investment uncertainty

When accounting for investment uncertainty the picture changes significantly. Moving out of cash seem less compelling to investors that have little room for taking on financial market risks. Under our risk tolerance assumptions investing into low to moderate investment risk portfolios becomes sub-optimal. The costs are simply too high. Investment fees of 1.5% or more therefore represent a barrier to entry for the wide population that has low suitability risk scores and hence little possibility to engage into moderate to high investment risk strategies.

Maximum fair fee in % across profiles

estimated fair fee
Excess return / risk for top-of-mind portfolios

Putting the pieces together

our take on fair wealth management fees

Fixed advisory costs instead ad valorem % pricing

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With robo-advisors becoming more well known and applied by the larger public it is certainly hard to justify an ad valorem principle for passive strategies. For an algorithm it does not matters how many zeros are behind a number that is being processed.

Lower entry costs for new low net-worth investors

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New investors need to be supported, particularly if their starting wealth base is low and their risk capacity is limited. We are convinced therefore that basic services for low-wealth investors need to be free of charge until a sufficient wealth buffer is build over time.

Costs need to adjust with the risk profile

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Everything else is a clear violation of asset pricing theory and empirical research. Adopting life-cycle-theory and tailoring each goal and risk profile to individual client needs must be at the forefront of investment advisory to ensure cheap and efficient access.

Committed to make a difference

helping all to grow wealth more equally


We believe that the commonly accepted pricing principles in the wealth management industry - ad valorem fees, more wealth=cheaper access, same price for varying risk profiles - are largely responsible for the existing and increasing inequality in wealth ownership. At QIO we are committed to a different set of principle that hopefully can help all to grow wealth more equally.