Advisers are forecasting rising operational costs over the next six months alongside falling revenues, according to new research from abrdn.
Nearly nine in ten (85%) UK advisers expect their operating costs to increase in the next six months.
Two fifths (39%) of respondents said they were concerned that cost increases could threaten their business in 2023.
When asked why, advisers most frequently cited increased vulnerability due to falling revenue – either due to clients’ invested assets decreasing in value (46%) or because clients were withdrawing more from their investments (44%).
Jonny Black, strategic director, abrdn, Adviser, said: “Advisers are being hit from two sides. Like businesses across the economy, firms are battling cost increases in everything from labour to energy. Meanwhile, as a lot of adviser charges are percentage based, they are seeing reduced fees because revenue has been hampered by recent market performance and because clients have adjusted their investment levels in the cost-of-living crisis. It’s costs up and revenue down for a lot of advisers.
“Firms must walk a fine line when managing these pressures. There is only so much they can do to reduce operational costs without affecting service levels and their operational effectiveness. Management teams will also be wary of turning to increased fees.”
abrdn’s research revealed that two in five firms (44%) have, or plan, to make changes to their business to manage the impact of increased overhead costs.
More than a quarter (29%) have or will relocate their office locations – rising to more than two fifths of networked businesses (43%).
A similar proportion are investing in new platform technology (28%), led by directly authorised firms (41%).
Meanwhile, just over a quarter (26%) of firms are or will be increasing fees charged to clients, led by networked businesses (36%).
Jonny Black added: “It’s welcome that so many businesses are already turning to platform solutions to help them navigate the period ahead.
“Platform technology – and the expertise and resources of platform providers – has a central role to play in helping firms unlock all-important operational efficiencies by helping businesses manage workloads faster.
“But the benefits don’t stop there. The right platform partnerships also support better client outcomes and help improve firms’ service quality. This, in turn helps firms compete, and grow their client bases.
“Firms are facing stiff operational headwinds. But this year will bring new opportunities for growth. Ensuring the right technology and partnerships are in place will help put them in the strongest possible position to capitalise on whatever arises, and mean they can continue to provide the quality of service that their clients so value.”