The state of flux in the advice market will mean the advice gap widening in the short-term as firms grapple with pressing economic and regulatory issues, the latest industry research paper from independent consultants AKG says.
Research for the paper ‘Future of Advice – State of Flux’ found advice firms are focused on issues with attracting new clients as well as economic and regulatory concerns at the cost of wider, longer term thinking on business strategy.
The paper, the second major examination of the market by AKG, is designed to support understanding of where the advice market currently stands and how and why it might evolve over the next few years.
In keeping with AKG’s approach to such papers content is again informed by insight gained from fresh market research(1), in this case comprising three separate but complementary exercises undertaken with consumer and adviser audiences.
Key findings include predictions that M&A activity in the adviser market over the next 2 to 3 years will continue to gather pace with 65% of advisers predicting it will build further momentum and 21% that it will expand rapidly.
Advisers were asked which issues (external and internal) give most cause for concern relating to the ongoing operation of their business and key issues selected were Marketing costs/issues attracting new clients (40%), Political uncertainty or geopolitical events (38%) and Regulatory or legislative change (37%).
Mainly exploring the near future, but also considering longer-term issues, the paper, sponsored by Canada Life and Charles Stanley, is available to download at https://www.akg.co.uk/downloads.
The adviser research ensured AKG was able to gather perspectives on a range of themes relating to business prospects, plans, client engagement and key industry challenges and opportunities.
Business strategy thoughts in advice firms were dominated by considerations around the economics/viability of advice provision and requirement for scale, tech deployment and deeper pockets for future survival.
Matt Ward, Communications Director at AKG, said: “Everyone is evidently busy dealing with important shorter-term issues which in turn is making a clear longer-term prognosis of the future of advice landscape harder to predict. Our previous FoA paper was dominated by
“COVID-19 factors and associated industry impact/responses. To some extent current fortunes are still being heavily impacted by external forces in the form of geopolitical factors, inflationary challenges and the cost of living crisis. Add in a healthy dose of regulatory focus and challenge in the form of Consumer Duty, and ongoing review of retirement income advice, and it is clear to see why a state of flux exists.
“But many of the crucial requirements for advice market development, despite some pockets of progressive activity, remain the same, including the need for concrete initiatives to better define the borders between information, guidance and advice, and serious contemplation of measures which can help to help bridge the advice gap in the UK. Alongside these is the continued requirement for better integration and progressive use of technology across the advice value chain.”
The consumer research ensured AKG was able to gather vital perspectives on a range of key themes relating to their engagement (or not) with advice and money matters. One-quarter (25%) of those consumers surveyed by AKG claimed to have seen a financial adviser in the last five years.
For those of this group who engage with an adviser on an ongoing basis, key factors valued about the relationship included Access to someone human who completely understands my financial situation (19%) and Peace of mind over financial decisions (19%).
Meanwhile, those consumers who had not consulted a financial adviser in the past five years were asked why this is the case and key reasons selected included not having enough wealth or assets to warrant consulting an adviser (21%), not wanting to pay for it (21%) and not needing it due to good financial understanding and making own decisions independently (20%)
It is vital for the industry to continue to build and monitor its understanding of consumer sentiment as it plots a longer-term path to building guidance and advice solutions.
Tom Evans, Managing Director, Retirement, at Canada Life said: “The industry continues to face change and challenges. Whilst not exclusively down to market volatility, technological disruption, or new regulation, these factors have major implications for the advice market, now and in the future.
The paper delves into how the public regard their own levels of financial knowledge and their need for guidance. Some people feel confident now but worry about changing rules and regulations adding complexity in the future. Others wouldn’t see a financial adviser at all – even if professional advice was offered for free. Unpicking these wary perceptions of the advice industry is not a straightforward task, but is vital to understand, for adviser businesses not only to survive, but indeed thrive.
Via ‘State of Flux’, we can begin to understand our collective blind spots and help to recognise how the advice landscape needs to evolve and adapt. It is our hope that our partners and intermediaries find the paper as valuable and insightful as we did.”
Sean Osborne, Group Head of Sales at Charles Stanley said: “The pressure is rising on advice firms (especially smaller firms) who are having to grapple with the ever-increasing costs associated with attracting a new and younger client base, a general election and potential change of government on the horizon, and the introduction of more regulation, notably the consumer duty.
“Whilst, perhaps unexpectedly, more M&A activity is assumed in the years to come, it is concerning to see that these pressures may also lead to a further widening of the advice gap.
“To tackle uncertainty of costs and the added requirements of consumer duty, many firms are choosing to outsource their investments to a partner that can both provide access to an established investment team along with additional benefits that support client servicing and regulatory demands.”
AKG wants this future of advice paper to be of practical use, outlining key challenges and opportunities, and subsequently establishing a platform from which key themes can continue to be discussed and debated post publication.
