New horizons for financial advice

  • Understand how advice is changing
  • Learn about the effect of new techologies
  • Gain an understanding of the challenges

And rather than being overcome by the weight of regulation, it is the smaller players that are the most profitable: pre-tax profits as a proportion of turnover were much higher at the lower end of the scale, as Chart 1 shows.

Yes, this does not speak of a sector that is good at controlling its costs. And yes, there are questions as to how much of this boom in revenues – for advisers large and small – was predicated on defined benefit transfer fees that have now been put at risk by regulatory change and rising professional indemnity insurance premiums. The FCA estimates that an amount equivalent to 10 per cent of advisers’ total 2018 revenues may be eradicated by its contingent charging ban.

But be that as it may, there are two big structural reasons to be cheerful about the future of financial advice. The first is demographics; an ageing population means more people than ever before will be engaging with the wealth they built up in the boom years. And the pension freedoms era means they have more scope to do so than their predecessors. These factors should ensure the industry remains on a sound footing in the near term. 

Unfortunately for advisers, this state of affairs does not guarantee a stress-free life. While many regulators and politicians have appeared to agree that a flourishing advice sector is an important cog in a 21st century economy, there is a difference between a healthy industry and one that adequately serves the needs of the wider populace.

Individual advice companies may be able to discharge their responsibilities in a way that ensures their profitability. But the widening advice gap and fresh spike in mis-selling problems seen over the past three years means few will be able to rest on their laurels in the years ahead.

From threat to opportunity

Second-guessing the precise nature of future regulatory changes is a foolhardy pursuit, particularly when few have much of an idea of how to satisfactorily close the advice gap. But the viability of other routes can be assessed with greater certainty. It is uncontroversial, for instance, to state that technology will continue to play a growing role in the way that advice is delivered over the next decade and beyond.

Five years ago, this shift was typically viewed as a threat: robo-advisers would unpick the very fabric of the advice industry and ultimately make many superfluous to requirements.

Now, there is more acceptance that technology is both helping change advice for the better and being employed in tandem with, rather than instead of, advisers’ existing practices. There are still question marks over robo-advisers’ ability to provide more than a scaled-back service to clients – and bigger questions over whether any will garner enough assets to be viable as long-term business propositions – but it is existing back-office systems that are truly benefiting from technological change.