The difficult economic environment is having a negative impact on the financial advice profession, according to the 2023 iteration of the NextWealth Financial Advice Business Benchmarks report.
The annual survey, produced in association with the Chartered Institute for Securities & Investment (CISI) and the Personal Investment Management and Financial Advice Association (PIMFA) revealed more advisers are looking to sell up, with 16% saying they plan to sell or exit the market in the next 18 months – up 5% year-on-year. Almost half (48%) have been approached by a potential acquirer.
The report also indicated that clients are thinner on the ground. The number of advisers working with more clients than in the previous year has dropped from nearly half (46%) to below a third (29%). Almost a fifth (17%) have fewer clients than last year, compared with 5% in 2022.
The cost of advice is meanwhile dropping, having fallen from 1.98% to 1.75% in the past year. Four-fifths (81%) of firms are now charging on a percentage of assets either all or much of the time, the report showed.
Just under half (45%) of advisers use a managed portfolio service and a fifth (22%) expect to increase their use of this. An average 8% of clients’ assets are invested in cash and more than a quarter (28%) of advisers expect their clients’ cash holdings to increase over the next year.
The survey found more than a third (38%) of advisers think Consumer Duty will have no impact on their business and that almost half (46%) use cashflow modelling to evidence the value of advice.
‘Actively considering’ AI
When asked about the technology they use, 43% of respondents expressed themselves satisfied with their tech ‘stack’ – up from 38% in 2022 – although, at the same time, the number of advisers planning to discontinue one or more technology partnerships rose to 11%, from last year’s 4%.
Nearly half (44%) said that preparing the client report is the step that takes the longest in the annual client-review process. It is taking less time to prepare for the annual review meeting, however, with 4.6 hours the average, compared with last year’s 5.5 hours. More than half of respondents were receptive to further technology development – 59% saying they are actively considering AI or are open to seeing what might come to market.
Firms describing their client-facing staff as ‘financial planners’ increased their client base more than firms using the term ‘financial advisers’. More than a third (36%) of planners saw an increase in the number of clients at their firm, in comparison with 21% of advisers. The report also found planners tend to have higher qualifications and wealthier clients, while firms using the term ‘planners’ tend to be more positive about the future than ‘advisers’.
More than half (58%) of ‘planner’ respondents plan to grow by increasing assets, compared with 38% of advisers; 59% plan to expand their client base in comparison with 46% of advisers; more than a third (34%) are looking to increase staff numbers, compared with 18% of advisers; and almost double (17%) the amount of planners compared with advisers (9%) aim to grow by acquisition.
‘Eye of the storm’
“Between tepid markets, rising interest rates and consumer duty, financial-advice firms are having a rough ride,” said NextWealth managing director Heather Hopkins (pictured). “Review meetings are harder and many advisers tell us they have seen their first unhappy clients. Financial advice firms may be adding more value now than ever but rightly or wrongly, clients often judge firms against relatively short-term investment performance.”
She added: “Whether financial advisers are in the eye of the storm caused by continued regulatory disruption, coupled with weak markets and higher interest rates, or they are just battening down the hatches and the worst is yet to come, we think firms are well set up for growth when markets recover. Firms have honed their tech, refined their business models and are putting more resource into client recruitment.”
CISI assistant director, financial planning and education development Sally Plant meanwhile observed: “This report provides some stark findings regarding selling up, attitudes towards consumer duty, AI and the fact that the cost of advice is falling.
“From the perspective of a professional body, however, the most compelling finding is the clear distinction between ‘planners’ and ‘advisers’. The fact that firms using the term ‘planners’ for their client-facing staff were found to be more positive about the future than those describing themselves as ‘advisers’ will be good news for financial-planning clients.”
For her part, PIMFA chief executive Liz Field noted: “The previous 12 months has seen a significant upheaval in this market and we had been concerned that firms had been forced to put some plans on hold in order to grapple with the weight of regulatory change. The findings of this report show this is an industry that continues to move forward – albeit in the face of some challenging conditions – build for the future and show resilience.”
