Increased regulation is a barrier to new advice firms entering the market, but this could be a good thing for existing firms, according to the president of Morningstar.
Daniel Needham said there were positives to be found in what could appear to be a gloomy outlook, including there being less competition in the market with fewer new firms opting to enter the sector.
The industry is facing a challenging time with high interest rates slowing flows into the market and regulation increasing the burden on advice firms.
Speaking at the Morningstar Investment conference today (May 1), he said: “A lot of regulation isn't influenced by the size of your practice so these are fixed costs. Whether you're a one person shop or just starting out.
“This fixed cost is a barrier to entry, it prevents new entrants, because they need to come up with [the money] before they can actually open the shop.
“One of the unintended consequences of these regulations will be fewer new entrants.”
However, he said this could result in fewer people being able to access advice and therefore grow the unadvised population.
He added: “These are the trade-offs that we have, but for all of the incumbents, that's a net positive because there is less competition.
"This means profits in the industry can actually stabilise and if you run your practice well, you can actually do really well.”
Needham added technology upgrades are key for the success of financial advice firms.
He said: “The most important thing to embrace is technology.
“Technology will allow you to scale and you may think about hiring somebody in the firm who's very tech savvy that can help you do that.
“If you do these things, it can increase the value of your advice business. Whether it's for you for the next 30 years or whether it's for a successor that you're developing internally.”
tara.o'connor@ft.com
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