Financial advice industry grew in 2019 despite rising costs and increasing regulation

Despite rising costs and widening regulation, financial advisers across the UK saw their turnover grow in 2019 and welcomed an increasing number of clients, new research reveals.

The 2020 Financial Adviser survey (Download the report here: Surfing the Wave) – the fifth to be carried out by global fund data provider FE fundinfo – also reveals that the demand for financial advice has been driven by ever more complex financial needs, low growth in DIY investing and a genuine lack of alternatives to spending time with a professional adviser.

The report reveals:

• More than 54% of advisers are increasingly positive regarding their business outlook than they were a year ago.
• 79% of advisers surveyed reported an increase in new client numbers in 2019, with only 1.4% reporting a reduction.
• Nearly 52% of advisers reported increased turnover of at least 5%, with almost 30% reporting turnover increasing by over 10%.

The report also reveals that in order to meet this demand, advisers are increasingly turning to third parties to manage their investment propositions. A majority (57% of advisers) are now using third party model and managed portfolios in some capacity, which is up from 50% last year.

Rob Gleeson, Head of FE Investments, said:

“It’s not surprising that IFAs are turning to third party providers. Most IFAs are not investment professionals, but rather lifetime financial planners. Many recognise that they are not experts in fund selection, so prefer to concentrate their time on providing due diligence around those that are. We are fortunate at FE Investments that we do not come from a traditional investment background but are problem-solvers instead. We recognise the position that many IFAs have found themselves in and have developed an investment proposition accordingly.”

Despite the rise in demand for financial advice, financial advisers have however had to contend with rising costs and a greater regulatory burden during the same period. Almost 85% of all advisers surveyed reported that their operational costs had increased over the last 12 months and over half cited cost and ‘regulatory burden’ as the main concerns for their businesses.

Among the stated costs affecting advisers, 33% said staffing was their biggest concern, followed by professional indemnity insurance (27%), reporting and regulatory concerns (26%) and rising technology costs (15%).

Environmental, Social and Governance (ESG) investing is increasingly taking hold, with more than half of advisers already incorporating ESG factors into their investment propositions, with a further 37% saying they plan to do so shortly.

That said, there does seem to be some confusion about how much investors understand about ESG investing and what it entails. While 36% of advisers say demand for ESG investing is coming from investors themselves, 62% of advisers say they don’t think their clients understand what ESG investing involves.

Mikkel Bates, Regulation Manager at FE fundinfo said:

“Investors may have a broad sense of what ESG investing involves, but it is unlikely that many have considered the practicalities of how, for example, an environmentally-friendly investment may not be sustainable, or vice versa. There is a huge difference between how ‘responsible’, ‘ethical’ and ‘sustainable’ investing is perceived and as an industry we must do more to provide clarity and transparency.”

With the FCA keen to see retirement pathways adopted over the course of 2020 for non-advised clients, retirement planning is also another potential growth area identified in the research. Nearly half (48%) advisers now have a dedicated retirement proposition as opposed to 34% last year.

Rob Gleeson, Head of Investments at FE Investments said:

“Prior to the introduction of pensions freedoms, planning for retirement was fairly simple. Investors would invest to accumulate and then pay into an annuity. But now, even for those investing in vehicles like Self-invested Pension Plans (SIPPs), there is no guarantee of long-term income. We need to reframe attitudes to risk in retirement in order to provide a long-term sustainability of income.”