2024 has been a year full of geopolitical shocks and changes around the world. 2025 could well be more tumultuous; we have a new Labour government implementing its agenda in the UK (an agenda that is already facing significant scrutiny), a Trump administration in the US which will focus its efforts on US economic growth and conflicts around the world that seemingly continue without sign of abatement.
It may well be that the Trump government makes progress in bringing some of those conflicts to a conclusion, but inevitably it feels like we live in a world of great instability and this will no doubt translate into volatility in markets.
Wealth and advice firms can only control the controllables; ensuring they are compliant, not exposed to unnecessary risk and continuing to invest in technology to help drive innovation and growth.
National Insurance impact on wealth and advice firms
One of the big changes in the UK Budget in October was to National Insurance (NI) for employers – this is something that could impact advice firms in 2025.
There are two primary impacts arising from the Budget. If you consider any customer facing organisation that manages a contact centre and the demographic within that contact centre, then there will be a significant number of employees who are paid near or close to the minimum wage.
Firms will be facing increased costs (at a time when retention in contact centres is incredibly challenging) to keep staffing up together with higher NI.
At this time of year, there will demands for pay rises, bonuses, additional recruitment and pressure on other discretionary spend (e.g. marketing, change, IT budgets). It will be hard to pass those increased costs onto the consumer, which we know is difficult in a world where fee structures are often aligned to contracts and revenue is subject to market activity.
The twin pressures of higher taxes and margin squeeze on the demand-side may well see a real focus on technology innovation to reduce resourcing need.
Regulatory issues expected in 2025
We know there will be a focus on operational resilience in the run up to Q1 and some businesses won’t have focused sufficient attention on the evidencing and ongoing monitoring required to demonstrate that their operating model is robust.
We still see failures across people, process and technology that undermine overall resilience in propositions and consumer confidence. We especially see challenges where third parties are intrinsic to service availability and where those dependencies haven’t been fully considered and contingencies identified.
We expect the FCA to demand more of firms in this space post Q1 next year. In addition, we’ll see a continued focus on vulnerable customers and how firms design their propositions to accommodate both permanent and transient vulnerabilities – and how they evidence they are doing that. We’ll obviously also hear more about ongoing advice.
Given the rhetoric from the government about a regulator focused more on growth than risk, we may see the FCA working more closely with industry to drive positive consumer outcomes aligned to the Consumer Duty in a collaborative way.
The set-up of an AI Lab is a positive first step in fostering that collaboration to drive innovation and help organisations find a way to implement the principles of the duty in an efficient and scalable way. We know all firms will be facing cost pressures arising from the recent Budget and with inflation and interest rates no longer trending downwards, we may see increased volatility and a keen focus on cost management.
Elsewhere, the ball is already rolling on elements of the Sustainability Disclosure Requirements (SDR), with the anti-greenwashing rule, fund labels and naming and marketing requirements now in effect.
Firms will need to continue their efforts to implement, with a focus on compliance, governance and training. Given the experience thus far of the rigorous FCA fund labels application approach, firms should ensure they have a solid process in place when preparing to make a fund labelling application to give it the best chance of success. There are plans to broaden the scope of SDR to include funds under the Overseas Funds Regime, for which FCA consultation on rules and guidance is likely to progress next year. And finally, firms with assets under management of more than £50bn will also need to prepare to comply with ongoing product-level and entity-level disclosures by December 2025.
Consumer Duty crackdown?
2025 may be the year that the FCA finally cracks down on poor Consumer Duty implementation.
The tone from the FCA and focused investigations into areas like ongoing advice has certainly made the industry sit up and take note of the accountability that the FCA is expecting of firms..
Companies have had a couple of years to embed the principles of the Consumer Duty (though some might argue most should/will have been doing that already) and evidence of any activities that conflict with the spirit of it are unlikely to be well received.
The FCA will consider that firms have had sufficient time now to embed changes and be monitoring their effectiveness.
Conclusion
The Budget has certainly impacted upon 2025 sentiment; the increased cost burden is going to result in firms taking difficult decisions about how they invest to grow.
The cost implications are not immaterial and that has no doubt played a part in a negative outlook that now contains a significant amount of uncertainty.
If firms weren’t looking at how they use technology before to facilitate growth, they certainly will be now; those that are able to innovate and change will reap the rewards in 2025.
Carl Woodward is a director at Simplify Consulting
