Strong demand for financial advice combined with a limited supply of financial advisers is an excellent recipe for buoyant income for the advice sector, even in the most turbulent years – of which 2022 was no exception.
2022 saw revenues from advice on retail investments increase by 5.6% as well as growth in client numbers and the value of average client portfolio sizes. Adviser productivity has not received much attention – the number of ongoing clients per adviser has risen 42% since 2016 and revenue per adviser is also up markedly.
Adviser numbers have even risen slightly, as new recruits come on board and some older advisers postpone their retirement plans. But the essentially static number of advisers means that the advice gap remains sizeable, despite increasing productivity.
The trickle of advisers entering the profession – mostly through the largest firms – is not solving the systemic adviser capacity issues. Without significant increase in advisers, current trends will persist:
- Adviser remuneration will continue to be the largest cost centre for advice firms – as high a 45% of overheads – and this will continue as long as the supply of new advisers remains limited.
- Advice charges will increase, driven by the pay pressures of advisers and skilled support staff, as well as an increasing regulatory burden on time and resources.
- The advice gap will continue to widen as advisers target wealthier clients and drop less profitable ones to boost the capital valuations of their businesses.
Advisers we spoke to for our latest research, UK Financial Advisers: Market Overview, believe that personalised advice will remain the preserve of the wealthy. They perceive that regulatory initiatives, like Consumer Duty, are only driving this trend and producing contradictory outcomes – the drive on value for money countered by rising costs of doing business.
Recent improvements in adviser productivity show that advisers can handle more clients. Further IT and comms enhancements could accelerate this trend, especially from AI and better connectivity between systems. Other developments would also be welcome – provider and platform performance are at last showing some signs of progress, although advisers tell us that insurance companies are notable laggers. And the trend of outsourcing investment processes takes huge amounts of admin off advisers.
Perhaps things will only get better!
Platforum has recently published UK Financial Advisers: Market Overview, providing a comprehensive overview of the UK advice market, including its size, structure and the key trends in consolidation, charging structures, the impact of Consumer Duty, and adviser capacity issues. For more information, please get in touch.