Engaging with UK Financial Advisors: Trends, Concerns, and Opportunities

Table of Contents

1. EXECUTIVE SUMMARY
1.1. A buoyant UK IFA market carries a heavy regulatory burden
1.2. Key findings
1.3. Critical success factors

2. THE UK FINANCIAL ADVISOR MARKET IS BUOYANT
2.1. The number of financial advisor firms and advisors is increasing
2.1.1. There were 26,311 financial advisor firms at the end of 2017
2.1.2. The majority of financial advisor firms are independent
2.1.3. Average revenues from retail investments are on the up
2.2. Financial advisors are the leading channel in the sale of pensions and investment products
2.2.1. Financial advisors accounted for 58% of pensions and retail investment product sales in the first half of 2018
2.2.2. Outside of pension investments, investors tend to arrange investments directly or via a financial advisor
2.2.3. The expertise of financial advisors is the key draw for investors
2.3. Mass affluent individuals are the mainstay of the advice market, with retirement a key prompt for seeking advice
2.3.1. Retirement is a key driver for seeking advice

3. REGULATION IS CONSIDERED THE GREATEST THREAT AND AN AGING POPULATION THE BIGGEST OPPORTUNITY
3.1. Threats: compliance is the chief concern for advisors, while competition from robo-advisors causes little worry
3.1.1. Brexit, industry consolidation, and the tax treatment of pensions are also considered key threats
3.1.2. Advisors are less concerned about the competition posed by robo-advisors
3.2. Brexit is the most imminent threat and will bring increased volatility
3.2.1. Client communication will be key in guiding clients through volatility
3.2.2. Advisors servicing British expats in Continental Europe face particular challenges
3.3. The regulatory burden for financial advisors shows no signs of diminishing and is particularly hard on sole advisors
3.3.1. 2018 was a big year for new regulation, with more set for 2019
3.3.2. MiFID II brought in numerous changes for advisors, and the impact continues into 2019
3.3.3. The impact of MiFID II on clients so far has been limited, but may change as the first cost and charges disclosures are released
3.3.4. The regulatory burden is of particular concern to single IFAs
3.4. Industry consolidation: perceived as both a threat and an opportunity
3.4.1. Industry consolidation continues apace
3.4.2. 8.4% of advisors are considering exiting the profession, providing a steady pipeline for acquirers
3.4.3. Retirement is the number one driver for exits, but regulation is also a notable factor
3.5. Fears over pension tax relief cuts have yet to be realised, but linger on
3.5.1. The October 2018 budget did not make the much-feared raid on pension tax relief
3.6. Opportunities: the UK’s aging population represents the greatest opportunity
3.6.1. Changes to pension laws, DB to DC transfers, and social care funding are also considered notable opportunities
3.7. The UK’s aging population provides a growing customer base for financial advisors
3.7.1. By 2041 there will be almost 4 million additional adults of pensionable age
3.7.2. The aging population will have not only retirement planning requirements but also social care funding needs
3.8. DB to DC transfers are an opportunity, but are not without risk
3.8.1. The value of DB to DC transfers is growing
3.8.2. More advisors are obtaining permission to advise on DB to DC transfers
3.8.3. However, the FCA is putting advisors under increasing scrutiny and professional indemnity premiums are rising due to mis-selling fears

4. TO TARGET FINANCIAL ADVISORS EFFECTIVELY, PROVIDERS MUST CONSIDER COST, REGULATION, AND CARE FOR END CLIENTS
4.1. There is limited scope for providers to encourage advisors to become restricted
4.1.1. Restricted advisors accounted for 11% of the market at the end of 2017
4.1.2. Just 3% of current IFAs are considering switching to restricted status
4.1.3. For independent advisors considering switching, the opportunity to spend more time with clients is key
4.2. Service provision: platform usage is embedded, but competition is robust
4.2.1. 91% of advisors use an investment platform
4.2.2. Cost is the key consideration for advisors when selecting a platform, but product range also comes into play
4.2.3. Advisors review providers annually, and 7.5% are considering switching provider
4.3. Service provision: demand for investment management outsourcing is solid, but reservations remain
4.3.1. 39.1% of financial advisors outsource investment management to a DFM
4.3.2. The ability to focus on planning and client relationships are the greatest draws to outsourcing, while cost is the biggest barrier
4.3.3. A good investment track record is the top requirement of advisors looking to outsource

5. APPENDIX
5.1. Abbreviations and acronyms
5.2. Definitions
5.2.1. Article 3 exempt firms from MiFID
5.2.2. DB pension
5.2.3. DC pension
5.2.4. Emerging affluent
5.2.5. HNW
5.2.6. IFA
5.2.7. Liquid assets
5.2.8. Mass affluent
5.2.9. Mass market
5.2.10. OADR
5.2.11. Restricted advisor
5.2.12. SPA
5.3. Methodology
5.3.1. 2018 IFA Survey
5.3.2. 2018 UK Investor Survey
5.4. Secondary sources
5.5. Further reading

List of Tables

• Table 1: Average retail investment revenues of financial advice firms (£), segmented by number of advisors, 2015-17


• Table 2: Selected IFA acquisitions in 2018

List of Figures

• Figure 1: The number of financial advisor firms and advisors is increasing, with the majority of firms consisting of five or fewer advisors


• Figure 2: Almost 90% of financial advisors have independent status


• Figure 3: Retail investment fees and charges are the predominant revenue type for advisors


• Figure 4: Bank-led retail investment product sales have collapsed since the RDR


• Figure 5: Investors largely arrange investments directly or via a financial advisor


• Figure 6: Financial advisors dominate the financial landscape both in terms of number of companies and number of advisors


• Figure 7: Investors that use financial planners are actively seeking out investment expertise


• Figure 8: Those investing directly have a strong preference for managing investments themselves


• Figure 9: Mass affluent clients typically account for the majority of an advisor’s book


• Figure 10: Mass affluent investors are more likely to hold investment products than mass market or emerging affluent consumers


• Figure 11: Retirement is the number one prompt for clients to seek financial advice


• Figure 12: Savings, pensions, and investments are the key products that prompt investors to turn to a financial advisor


• Figure 13: Staying compliant with regulation is the most widespread concern among financial advisors


• Figure 14: Single advisors are most concerned about staying compliant with changing regulations


• Figure 15: 8.4% of financial advisors are thinking about exiting the financial advice profession


• Figure 16: Approaching retirement is the key driver for advisors exiting the profession


• Figure 17: A number of providers offer regulatory, compliance, and marketing support to IFAs


• Figure 18: The UK’s aging population is considered the greatest opportunity by financial advisors


• Figure 19: There will be noticeable increases in the working population and those of pensionable age by 2041


• Figure 20: The volume of advisors turning restricted has tapered off significantly since 2015


• Figure 21: Over 90% of IFAs would not consider switching to a restricted model


• Figure 22: To encourage advisors to switch to restricted status, networks and providers should focus on client time and easing the regulatory burden


• Figure 23: Financial advisors tend to work with multiple platform providers


• Figure 24: Low cost is the key requirement of a platform package, followed by investment product range


• Figure 25: 39.1% of financial advisors outsource investment activities for personal clients to DFMs


• Figure 26: The ability for advisors to focus on financial planning is the key reason to outsource to a DFM


• Figure 27: Cost is the number one barrier to outsourcing to a DFM


• Figure 28: A good investment track record and excellent customer service are the key requirements of advisors outsourcing to DFMs

• FCA


• Cofunds


• Aegon


• Blevins Franks


• Aisa International


• Blacktower Financial


• St. James’s Place


• Openwork


• threesixty


• Bankhall


• and SimplyBiz


• Sanlam


• Tenetselect


• Stirling House


• AFH


• AE Financial Services


• Ascot Lloyd


• Ashton House


• Aylwin


• Belasis


• Brewin Dolphin


• Core Financial Services


• CTL Three


• CWP Financial Services


• Debbie and Nick Burchall


• DG Pryde


• Emery Little Financial Services


• Fairstone


• Generic Financial Management


• Grennan Advisers


• Harvey Curtis


• Harwood Wealth Management


• HMFC Wealth Management


• Index Wealth Management


• Lifetime Investment & Seminar Services


• Lyn Financial Services


• Mark Hughes & Associates


• Moneyfax


• Monopoly Financial Consultants


• Newell Palmer


• Nick Davies


• Old Mutual Wealth


• Premier Wealth Management


• Robert Goodman Associates


• Sanlam UK


• Sense Wealth Management


• Sims Financial Planning


• Steve White


• The Acumen Investment Partnership


• Thomas Heald


• Tilney


• Zimb Johnson Bespoke Financial Planning


• British Steel


• Active Wealth


• Bellpenny


• Sandringham Financial Partners


• Aviva


• Hargreaves Lansdown