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The ‘great retirement’ means different things to different people but what about the financial advice sector? When regulation started 30 years ago, there were around 250,000 advisers in the UK, but this number is now just 26,000 from 5,500 firms. A study last year showed that 20% of financial advisers are considering retirement.
Why has the financial adviser population declined so dramatically? Overheads, administration, and regulation. Costs and the current regulatory backdrop aren’t conducive to innovative start-ups, hampering new advice businesses entering the market. The advice sector is currently diverse when it comes to company size, from small local advisers to large firms with hundreds of advisers covering the whole of the UK, but some smaller firms may have been pushed out of the market due to the burden of dramatically increased direct and indirect regulation costs such as the Financial Services Compensation Scheme and professional indemnity insurance.
Is there demand for financial planning? The Financial Planning Standards Board's global job analysis survey interviewed 4,250 certified financial planners across 23 countries, including the UK, about their expectations for their profession and for consumer finances and concluded that there’s an overwhelming expectation globally that public demand for financial planning will increase. The need for advice spans all generations but pension planning services and advice to younger audiences is looking set to increase dramatically over the next few years.
The demand is there but with 20% of advisers set to leave the industry, the threat of a dysfunctional market is looming. Thousands of people have lost their jobs during the coronavirus crisis, so there’s an obvious solution. What’s the government doing to reduce unemployment and plug the adviser gap? Incentive grants for apprenticeships in general were increased from £1,500 to £3,000, and there’ll be an additional £126m investment in traineeships. The government wants to attract fresh and diverse talent to the insurance and personal finance profession at scale. With more than 40,000 young people in England looking to benefit, will this be enough to stop the advice profession reaching supply crisis point?
What about the advice gap? Fact -few people in the UK take financial advice. The Financial Conduct Authority's Financial Lives 2020 survey found that there are 38 million adults in the UK not receiving any formal support with their finance. Only 17% of UK adults with more than £10,000 of investible assets received advice last year, with 29% having sought some form of guidance. With interest rates at record lows and savings having built up for some during the pandemic, there’s an opportunity to introduce new savers to investments. If more people sought advice, a more financially resilient population would emerge, creating a stronger economy. Let’s face it, it’s in everyone’s interest to increase demand for financial advice and there’s a massive unmet market out there.
Large advice firms may be attractive to investors as they are able to provide a more standardised service at a lower fee and they may have a larger marketing budget, enabling them to reach a wider audience, but smaller advice businesses may provide a more tailored, personalised service, an approach that is preferred by some investors. In the spirit of consumer choice, it’s vital that there’s a broad range of advice options across the market to suit everyone’s needs. For many advisers, delivering financial advice remotely has become the norm and this is set to continue. Accessibility has improved, now we just need more advisers to provide the advice.
The place for small and large businesses in the advice sector is undisputable, as is the need for affordable financial advice across the generations. The government, the regulator, and the industry as a whole need to attract more young people to the profession and ensure that conditions allow firms of all sizes to flourish. Is it too late to plug the gap or will the future be diverse and bright for financial advice?
The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.
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