The advice sector is entering 2022 in rude health as firms look forward to increasing turnover and organic growth spurred by a focus on client outcomes, according to the results of the lang cat’s annual State of the Adviser Nation (SOTAN) research.
Now in its fourth wave and surveying 445 adviser respondents, one of the biggest conclusions from the report is the fragmentation and segmentation seen in how advisers approach key decisions such as CIP adoption and platform selection.
This evidence is clearest when it comes to matching platforms and investments to client requirements, with most firms running more than one platform relationship while assets held on a legacy basis are spread all over the place. Of the 88% of advice firms who run a CIP, a fifth use more than one type of CIP methodology within their firm and the majority (34%) choose to have a degree of optionality underneath their adviser-led or DFM models e.g. ethical, active or passive portfolios.
Insight director at the lang cat, Steven Nelson, comments on why this fragmentation is a positive sign for the health of the sector: “The clearest message from our latest SOTAN research is that the sector doesn’t think one way about anything. Indeed, one of the few consistencies amongst the variety of adviser approaches we see is that all roads lead to client suitability. This is a sector where there is clear, demonstratable, quantitative evidence that advice firms are choosing client outcomes over an easier set of processes for themselves.”
More evidence of sector health
The report finds that advice businesses are emerging from the challenges of the pandemic in very good condition. Almost 80% of business leaders from advice firms expect to report an increase in turnover for 2021 compared to 2022 while 76% of businesses are also happy with their current level of organic growth.
Steven Nelson says: “What these turnover levels and organic growth aspirations tell us is that this is not a distressed profession looking for the means to pay its next bill. Is it little wonder then that the metaphorical vultures are circling, with the majority (64%) of advisers stating that they are being regularly approached by consolidators?”
The advice gap: next generation of advisers and tech needed
SOTAN concludes by asking some important questions about what the sector’s current state of health means for tackling the advice gap.
Steven Nelson continues: “Advisers’ satisfaction with organic growth levels also implies that there isn’t a widespread desire to take on the scores of new customers necessary to tackle the advice gap. There may be potential to unlock capacity through better technology but advisers’ understandable lack of faith in current tech provisions suggests we’re a long way off from that. And then there’s the movement from ‘product plus investment’ to ‘planning plus behavioural elements’ of financial advice which arguably places a ceiling on the number of clients who can reasonably be maintained by any one advice firm.
“Any additional capacity then surely needs to come from outside the professional with clearer career paths from school to further education and beyond. Many, many firms are already doing great work here but it’s clear that much more needs to be done by the sector as a whole. And a generational shift in technology provision definitely needs to come along for the ride.”
