The independent advice model will become “increasingly important” in 2023 as advisers seek to adhere to the Financial Conduct Authority’s consumer duty, ValidPath has said.
Commenting on the key themes that will impact the advice industry this year, the adviser network outlined how it believes regulation, innovative technology, increasing numbers of advisers retiring and independence versus consolidation will be the big talking points in 2023.
ValidPath chief executive, Angus MacNee said increasing regulation will mean senior managers in firms’ will have “a lot of additional responsibility on their shoulders”.
In 2022, the appointed representatives regime and consumer duty both began their implementation periods.
As part of the AR regime, the regulator established a department to manage oversight and tackle harm posed by appointed representatives and their principles.
It also set out proposals requiring principals to:
- Provide the regulator with more information on their ARs and the business these ARs conduct;
- Report to the regulator specific information on the activities the ARs are permitted to undertake, for inclusion on the Financial Services Register; and
- Notify the FCA of an intention to begin providing regulatory hosting services before beginning to do so.
The first deadline for consumer duty also passed in the final quarter of last year, with firms offering new and existing products and services now expected to have their plans implemented by July 2023.
Back in November, research by MoneyHub found that only 22 per cent of firms believe that they are currently compliant with the new regulation.
MacNee said he expects the FCA will continue to focus on its current priorities and the new regimes it has put in place as we move through 2023 and noted that these are “not tick box exercises”.
“Having good technology and scalable systems will be key to managing the increased compliance requirements while being able to maintain a compelling - and profitable - proposition for advisers and clients,” MacNee said.
Technology is transforming advice
According to ValidPath, the fundamentals of giving advice have not changed over the years, with understanding the client’s objectives, circumstances and attitude to risk all being important.
However, despite these fundamentals MacNee believes we are on the “cusp of a new paradigm” for how advice will be delivered in the future.
“When thinking about the future of financial advice, it has to be based on having real time information and insights to support clients. You can visualise this as a digital ‘fact find’ that is updated in real time from existing datasets accessible from APIs such as Open Banking,” MacNee explained.
Independence is everything Angus McNee, ValidPath“This information can then be analysed in real-time with respect to an individual’s objectives and the insights used to manage ongoing suitability and provide meaningful solutions to support better client outcomes.”
In MacNee’s view, this dynamic data will begin to influence the way financial advisers help their clients, and if used well can “provide better client outcomes to more clients with less risk.”
MacNee also noted the continuing trend towards consolidation in 2022 but highlighted that in his view independent advice will be vital in 2023 given the new regulatory landscape.
“Independence is everything, and it is what ensures that advisers can serve the full spectrum of clients via the full spectrum of products and platforms in their best interest,” MacNee said.
He added: “As we look back at 2022 and forward to 2023, we are proud to be fully committed to independence and independent financial advice.”
This trend towards consolidation is partly borne from the increasing number of financial advisers reaching retirement age.
ValidPath noted that two issues arising from this is firstly, what happens to the clients and firms when the owner-manager retires, and secondly, how does the industry encourage the next generation to join the advice sector.
In 2022, recognising that some advisers do not find the idea of selling their business to a consolidator appealing, ValidPath launched a ‘succession solution’ as an alternative.
“I strongly believe that the UK financial advice sector is well positioned to continue to serve a large and growing market demand for financial advice, and those firms that embrace technology, independence and focus on what is in the best interests of clients will be well positioned to thrive,” MacNee said.
jane.matthews@ft.com
