In a survey of its adviser client base, Dynamic Planner found for the majority of advisers the outlook was promising over the next five years.
However, for a significant number of sole practitioners, a sale or exit was highly likely in the next five years, especially among older financial planners.
The 31-page report, Growth, Opportunity and Sustainability: The Financial Advice Market in 2021, found that 14 per cent of all advisers questioned said they were looking to sell their business and/or leave the industry (as seen in the graph below).
But for sole practitioners, this number increased to 23 per cent, perhaps reflecting the wider consolidation activity in the market and the current high valuations for advice firms.
This corresponded with 62 per cent of all sole practitioners stating they have found the "burden, cost and pressure of regulation to be a major challenge for their business".
But speaking to FTAdviser ahead of the study's launch, Yasmina Siadatan, sales and marketing director for Dynamic Planner, and Ben Howell, head of marketing for Dynamic Planner, said the number of sole practitioners looking to leave was not a surprise, despite the high percentage.
Figure 2.2: Future plans
Siadatan said there could be a correlation between the one-man band and retirement age, with perhaps younger advisers and planners joining larger firms rather than setting up by themselves.
Howell agreed, adding: "A number of these are within the older age profile, which would make them naturally think about leaving the industry.
"Add to this the consolidation going on in the market, with the current high valuations, and it seems it is only natural for older advisers to be looking at the market and asking 'Is this the right time to go?'
"That said, just under half of all one-man bands told us they were expecting to grow their business over the next five years, so this is not to say that all sole practitioners are struggling."
Some 46 per cent of one-man bands expect to grow, compared with 61 per cent of firms with six to 49 advisers and 32 per cent of firms with 50 or more advisers.
Cost of regulation
Regarding the cost of regulation, one surprising element of the study was that advisers mostly do not find regulation to be their biggest challenge, but time and resource management.
The study said: "Time spent on regulation and back-office activities has increased in recent years, often to the detriment of time spent with clients.
"Reducing the time and cost to serve clients, while maintaining high levels of engagement and demonstrating value, is a big issue for advice firms of all sizes.
"Technology is undoubtedly the key to unlocking this potential, but while advisers agree with the idea that technology is improving their ability to serve clients, there are challenges in terms of getting diverse tech propositions to properly integrate."
Just under half of all one-man bands told us they were expecting to grow their business over the next five years.HowellA lack of time and resource was also a reason why many advisers could not take on lower-value clients (see the image, below). Time and resource restraints was top of the list at 36 per cent, followed by profitability concerns at 34 per cent. Regulation came in third, at 20 per cent.
Only 5 per cent of advisers said they simply did not want to serve lower-value clients.
The report said: "Very few advisers said that they didn’t want to serve more lower value clients.
"Instead, lack of time, the potential impact to overall profitability and concerns about inadvertently crossing a regulatory boundary are cited as the main reasons not to offer services to individuals with less money to invest."
One way to improve technology and help advisers serve more clients might be to simplify the range of tools and providers, the report suggested, especially as the vast majority of respondents claimed they have been using tech more during the Covid-19 lockdown, and would continue to operate a hybrid approach in future.
Positive overall
However, despite these challenges and changes brought about by the pandemic, the survey presented a positive picture overall.
In the executive summary, the report stated: "Advisers are facing into the future with confidence. Many advisers, particularly younger advice professionals, express a degree of confidence that client numbers will increase in the years ahead, and our report suggests that the Covid pandemic has driven consumers towards financial advice."
Moreover, eight out of 10 individuals working for financial advice firms would recommend financial planning as a career, which demonstrates the industry’s overall confidence in the future.
Women financial planners are especially engaged, with 88 per cent of respondents recommending financial planning as a career. Siadatan added: "Often the rhetoric is that everything is hard and challenging, and regulation makes it difficult.
"But when we asked if advisers would recommend this as a career to other people, the high responses were really positive and encouraging.
"If we can promote financial planning more and encourage even more people to come into the industry, that can only be a good thing. And I think you would be hard-pressed to get 80 per cent or more people recommending their profession as a career in any other field."
The research was carried out in the summer of 2021, via an online report of 348 financial advice professionals who are among Dynamic Planner's adviser client base.
simoney.kyriakou@ft.com
