Bovill analysis of the FCA’s latest intermediary data suggests the UK’s financial advice market is in good health. But while retail investment business revenue and ongoing client numbers have grown significantly since 2016 , the number of financial advisers has not. This raises some important questions. First, does the advice market have the capacity necessary to keep up with growing demand? And second, are firms well-resourced enough to deliver high quality ongoing services to their existing clients?
Ongoing client numbers are at record levels
In the last seven years the revenue generated from firms’ adviser charges has more than doubled. A key driver has been the significant increase in the number of ongoing clients, with firms benefitting from around half a million new ongoing clients each year. The proportion of clients who cease ongoing services each year has also been both low and stable, running at around 5%. This has resulted in the total number of ongoing advice clients served by firms rising significantly, from 2.6 million in 2016 to 3.9 million in 2022.
Michael Lawrence, Principal Consultant at Bovill, commented:
“The number of clients receiving ongoing advice has grown by over 50% since 2016. And I can only see this trend continuing as the pension freedoms produce a steady stream of clients who not only need advice but require it for a longer period. Is the advice market ready and able to meet this increasing demand for advice?”
Financial adviser numbers have grown but have they grown enough?
FCA data on financial adviser numbers shows consistent year-on-year increases over the same period: with total adviser numbers up from 34,584 in 2017 to 37,381 in 2022 (8%). But some simple maths around the advice market’s supply and demand paints a concerning picture: there have been only three thousand new advisers in the same time that firms have added 1.1 million new ongoing clients.
Efficiencies from technology adoption have increased capacity
This is not to say that the current situation is critical – not yet anyway. Technology-driven increases in adviser efficiency – accelerated by the Covid pandemic – have resulted in a significant uptick in adviser capacity. For example, the average number of ongoing clients per adviser has risen from 82 in 2017 to 105 in 2022. This trend has no doubt helped meet some of the increased demand. But this efficiency drive can only take the market so far. And without a further influx of new advisory talent or positive developments in alternative distribution models, a potential reckoning is on the cards. The FCA’s recent Advice Guidance Boundary Review has acknowledged this, and will look at how changes to both advice and guidance can help firms deliver more support to those who need it.
Michael Lawrence continued:
“We know that many firms have made great strides in updating their advice processes to deliver greater efficiency and a better client experience. Greater digitalisation via the adoption of back-office systems and third-party tools has driven down the number of hours it takes to serve a client, meaning that some firms have managed to double the number of ongoing clients per adviser. The rise in consolidation activity in the advice sector is also driving the efficiency agenda.
“However, this efficiency drive may not be enough to meet the long-term demand for advice. And changes in the way that many existing firms are delivering their advisory services also introduce risks that need to be managed carefully. Particularly when the FCA has signalled how it will be using the Consumer Duty to drive positive change in areas like client experience, fair value and client outcomes. Firms need to ensure they’re prepared for both the opportunities and challenges in this space.”
