Consumer demand for independent financial advice is greater than ever, yet the options available to an advice business in 2023, for its regulatory authorisation and back-office support, has changed significantly.
The backdrop of this change is that the level of experience and resources it takes to operate and run a successful advice business have never been greater, and the demands on those running firms continues to grow.
So, while an independent financial adviser network provides the essential infrastructure for an IFA business to operate, including the regulatory, compliance, insurance, agency and banking functions, a modern IFA network also provides on-demand services, market-leading technology and business support so advisers can focus on growing their business and servicing their clients.
What we have seen in 2023 is that the regulatory risk and impact of new regulation, such as consumer duty, has increased the cost of running an appointed representative regime and highlighted the requirement to invest in new technology, systems and the adviser proposition.
This, in combination with other legacy commercial changes post-Retail Distribution Review, means the business case for a product provider owning an IFA network is less clear, and this is why many product provider shareholders are seeking to exit the sector and draw a line under past liabilities, rather than invest in innovation to reverse a decaying value proposition of a non-core network business.
The IFA network sector in the UK is expected to see significant developments and growth in 2024.Looking ahead, despite the demise of legacy networks like Tenet in recent months and the inevitable exodus of other legacy networks in the future, particularly those with product provider shareholders, the future is bright for modern networks that embrace technology, innovation and what is in the client’s best interest.
What lies ahead
So, looking back, it is apparent which brands, business models and propositions will define the past and, as we enter 2024, what will define the future.
The past was legacy analogue processes and siloed data, and the future is technology integration, automation and open application programming interfaces.
The past was a "set-and-forget" business model driven by funds under management and proprietary fees, and the future is a real-time approach to delivering positive client outcomes.
The past was a platform and product focus, and the future is independence and what is in the client's best interest.
In many ways, being relevant in the future and having a clear value proposition comes down to incentives and who cares more, and this is particularly important as an IFA network when you are supporting a community of independent financial advisers and their clients across the UK.
As an industry, the IFA network sector in the UK is expected to see significant developments and growth in 2024.
According to Johnston Carmichael, the wealth management and IFA industry generates more than £6bn in revenue a year, and continues to grow at more than 3 per cent a year, with industry forecasters predicting compound annual growth to 2027 of nearer 6 per cent. This growth is expected to continue through 2024 and beyond.
Changes in regulation, technology, and an ageing demographic of business owners has led to consolidation within the sector, and this is likely to continue for the coming years.
This consolidation has been driven by a number of larger industry players making bolt-on acquisitions as well as general merger and acquisition activity, in addition to the rise of private equity investment into consolidators within the market.
Consolidation provides limited, and perhaps undesirable, options for advice firms, and many are looking for alternatives to consolidation where they can continue to provide authentic independent financial advice, support clients in their best interest and potentially access liquidity and growth capital to turbocharge their business and succession plan.
The digital transformation and shifts in consumer behaviour will also continue to reshape the IFA network sector.
For example, a network proposition will increasingly need to have fully integrated systems that create efficiencies, improve the advice process and provide a better user experience for advisers and clients alike.
It will also need a strategy for using technology to support data-led decision-making and monitoring if it is to solve the key barriers for operating at scale at lower risk while supporting better client outcomes.
Looking into 2024, the key benchmark for defining a modern network and a robust framework to support an IFA business is the trajectory of its value proposition for advisers, and specifically that it should improve over time and with scale, while reducing cost and complexity.
In addition, it must provide a framework that can empower advisers to deliver positive client outcomes and support clients in their best interests.
While many in the industry may aspire to this, it is only possible with innovation, conviction and a commitment to invest in technology and champion independent financial advice, now and into the future.
Angus MacNee is CEO of IFA network and succession solution ValidPath
