For those in the retail investments category – made up of advisers, crowdfunders, wealth managers, self-invested personal pension operators, and more – they had the second highest proportion of respondents (66 per cent) compared with other financial services categories who expect a negative impact on their net income.
Of the 5,159 retail investments companies surveyed, 54 per cent expected a neutral impact on their business model, while 42 per cent expected a negative impact. Only 4 per cent had a positive outlook.
That said, only 1 per cent of companies in the retail investments category expected their income to be impacted by 76 per cent or more. Plus, there was an increase – albeit minimal at 1 per cent – in the number of profitable retail investment companies between February and May/June of last year.
So how well does the FCA results reflect how the advice industry has fared?
It has been an undeniably challenging year for the sector, but many advisers say IFAs have responded well. Some have fared better than others because of their pricing model.
Darren Cooke, a chartered financial planner at Red Circle Financial Planning, says: “Most advice firms I speak to have come through 2020 pretty well. If you are an established business where a large part of your income comes from servicing existing clients it should have had very little impact.
For businesses that still rely on new business and initial fees I think they have been harder hit Darren Cooke, Red Circle Financial Planning“For businesses that still rely on new business and initial fees I think they have been harder hit. While we have been able to service existing clients on a remote basis and using video calls, I think it has been harder to take new clients that way. It is not impossible but I think it is generally harder for many.”
Rebecca Aldridge, managing director at Balance Wealth Planning, agrees. She says: “I think we’ve managed very well on the whole. We are providing services that have been of huge value during the last year. Firms charging flat fees will have come out on top and would have been less anxious about the situation as it played out as well.
“Very few people will have walked away from their investment portfolios or their financial planners during that time, so the existing relationships have been quite stable. And there have been people needing advice triggered by redundancy, bereavement and retirement in particular.
“What is perhaps not reflected is the effort this has taken. For financial planners, providing ongoing advice to existing clients has taken significantly more time than normal, so I’d expect that to have had an impact on profitability.”
Where companies have been impacted negatively, Ms Aldridge attributes most of this to do with the practicalities of lockdown, restrictions and particularly home-schooling, rather than a slowdown in people seeking advice.
In a survey of 300 advisers by Quilter in July last year, advisers and clients who may have been hesitant in the past to adopt video technology are now embracing this technology.
The study by Quilter’s national advice business found 88 per cent of advisers would continue to provide remote advice when the pandemic is over.
Meanwhile, video conferencing has not hindered advisers gaining new clients – with 77 per cent of advisers saying they have gained some during the period.
Gemma Harle, managing director of Quilter Financial Planning, says: “The retail investment sector likely faced more of a challenge given the dramatic dip in the markets and then continued rollercoaster over the last number of months. This makes people nervous to invest, particularly when they may be facing economic uncertainty with job cuts and furlough.
“However, we also know that some households are saving now more than ever as our lives have become so restricted.”
The FCA announced last week that it would send out a third mandatory survey to advisers – an activity many believe will become common practice.
Ms Aldridge says: “In a way they are more practical than the Gabriel returns, and more meaningful. It’s just good business practice to be checking this kind of data on a frequent basis anyway. Any good company will have the details about their financial situation and resilience at their fingertips.”
Tim Fassam, director of government relations and aid policy at trade body Pimfa, adds: “The FCA seems keen to be more data driven. So, I think we can and should expect more surveys of this type and on a wider range of issues. That should be a positive development as the more data the FCA has, the better it should be able to work with the firms it supervises.”
Advisers have clearly had to adapt their business models during the pandemic in order to survive. However, for many the biggest concern is not coronavirus, but the rising regulatory fees.
Mr Fassam says: “There are challenges with Covid, but of equal, if not greater, concern to most firms I speak to are ever-rising costs, whether that’s professional indemnity insurance premiums or the Financial Services Compensation Scheme levy, or both.”
Keith Richards, chief executive of the Personal Finance Society, says: “The issue that remains is the high level of volatility in PII and FSCS levies, which has been felt more in the latter half of 2020, and so may not have fed fully into figures for 2020.
“It is important to ensure that the costs of compensation are managed in a less volatile way than they currently are through PII and FSCS levies, or else the resilience of firms may be affected – either in their ability to function commercially, or in the scope of the services that they are able to offer to clients.”
As a result, where advisers may consider selling up, it is more likely to be in part driven by the stress felt by the fees.
“Covid could accelerate consolidation among some firms, but I don’t see it being the primary cause of such an acceleration,” Mr Fassam says. “The trend toward consolidation has existed for many years. I don’t particularly see this year being that much different.
Firms are much more concerned about rising regulatory costs Tim Fassam, Pimfa“Firms are much more concerned about rising regulatory costs. That’s why at the end of last year Pimfa called for a portion of FCA fines to be used to subsidise the FSCS levy rather than going directly to the Treasury. Such a solution would go some way to putting a halt to what are fast becoming unsustainable increases in the levy.”
For those worried about their business, what steps can they take, beyond the available government schemes and industry initiatives?
“Build a solid business, look after your clients well and provide an excellent service for a fair fee,” says Red Circle Financial Planning's Mr Cooke.
“Make your client the focus, not their money. Build a business based in planning, not on products or portfolios. Don't be greedy and never take out more than you put in. You tell your clients to have a contingency and you should have one too, personally and in your business.”
Ima Jackson-Obot is deputy features editor of FTAdviser
