ValidPath, the network for independent financial advisers, believes increasing regulation, a transition to dynamic advice powered by innovative technology, independence being the alternative to consolidation and more advisers seeking to retire will be key themes impacting the financial advice sector in 2023.
- 1) Increasing regulation – following the implementation of the AR Regime and Consumer Duty rules in 2022, the regulatory burden on intermediary firms has increased and the FCA has raised their expectations for reporting and supervision with respect to delivering positive client outcomes.
- 2) Technology is transforming the advice process – dynamic data will begin to influence the way financial advisers can support their clients and transform the incumbent ‘set and forget’ business model to one that is powered by real-time information and insights.
- 3) Importance of independence – with the continuing trend towards vertical integration, restricted advice and consolidation, independence and independent financial advice is increasingly important for advisers to be able to support clients in their best interests.
- 4) More advisers seeking to retire – with an aging adviser population, it is anticipated that over 50% of advisers will be retiring in the coming years meaning hundreds of billions of FUM will need to transition and thousands of sale and purchase transactions will need to occur.
While the financial services industry has proven to be resilient amidst unprecedented levels of uncertainty over the past two years, the challenges continue with market turbulence, rising interest rates and inflation, increasing costs, a move towards sustainability and the prospect of global conflict.
2022 was an interesting year for the advice sector; from a regulatory perspective, the AR regime and Consumer Duty rules have begun their implementation periods with the goal of increasing regulatory robustness, financial compliance and delivering positive client outcomes (and avoiding consumer harm).
Angus MacNee, CEO, ValidPath said: “As we enter 2023, I expect that the FCA will continue to focus on its current priorities and the new regulatory regimes it has put in place. These are not tick box exercises and they have put a lot of additional responsibility on the shoulders of intermediary firms and senior mangers. It is for these reasons that having good technology and scalable systems will be key to managing the increased compliance requirements while being able to maintain a compelling (and profitable) proposition for advisers and clients.”
Technology is transforming the advice process
Technology is playing an increasingly important role in how advisers help their clients and will continue to do so in 2023. Fundamentally, the process for providing financial advice hasn’t changed over the years; it is based on understanding the client’s objectives, circumstances and ‘attitude to risk’, putting in-place a suitable product or portfolio to support those considerations and then monitoring and adjusting for ongoing suitability. Yet, we are on the cusp of a new paradigm for how financial advice will be provided in the future that will be powered by technology.
Angus said: “When thinking about the future of financial advice, it has to be based on having real time information and insights to support clients. You can visualise this as a digital ‘fact find’ that is updated in real time from existing datasets accessible from APIs such as Open Banking. This information can then be analysed in real-time with respect to an individual’s objectives and the insights used to manage ongoing suitability and provide meaningful solutions to support better client outcomes. It is our view that dynamic data will begin to influence the way financial advisers help their clients, as a dynamic approach to financial advice and managing client suitability can provide better client outcomes to more clients with less risk.”
Importance of independence
There has been a continuing trend in 2022 towards vertical integration, restricted advice and consolidation. However, independent advice is going to be increasingly important in 2023 as the FCA implements a regulatory regime that aims to support better client outcomes because an independent advice model is the best framework to support clients in their best interest. This is also coupled with the realisation by many advisers that they want to have independence of business model and independence of approach for how they service their clients.
Angus MacNee, CEO, ValidPath said: “Independence is everything, and it is what ensures that advisers can serve the full spectrum of clients via the full spectrum of products and platforms in their best interest. As we look back at 2022 and forward to 2023, we are proud to be fully committed to independence and independent financial advice. Indeed, Independence is EverythingTM at ValidPath now, and into the future.”
More advisers seeking to retire
Finally, the industry is also experiencing the impact of an ageing adviser population resulting in the expectation that over half of all advisers will retire in the coming years. This leads to two issues,
the first is what happens to the clients and firms when there is a retiring owner manager and secondly, how do we encourage the next generation to join the advice sector and flourish within it.
Angus said: “Advisers have historically had limited options to sell and retire; they could seek to do it themselves which is time-consuming, disruptive and difficult (i.e. finance is limited) or they could sell to a consolidator. For those that value independence and what is in the best interests of clients (and staff), the consolidator option can be very unappealing. It is for this reason that we launched the ValidPath Succession Solution in 2022 to be an independent alternative to IFA consolidators. It enables those advisers looking to sell their business to access liquidity and retire on their terms while empowering the next generation of successor managers to become business owners.
“I strongly believe that the UK financial advice sector is well positioned to continue to serve a large and growing market demand for financial advice, and those firms that embrace technology, independence and focus on what is in the best interests of clients will be well positioned to thrive.”