Research by Investment Trends, which surveyed 1,371 financial advisers in March 2021, showed three in ten financial advisers have seen profitability decline in the past year, a record since the study began in 2012.
By comparison, in 2020 11 per cent said the same and in 2019 it was 8 per cent.
The report, titled Investment Trends 2021 UK Adviser Technology and Business, found advisers who utilised a narrower range of technologies such as digital signature tools or file sharing tools were more likely to have experienced an 'important business challenge' during the pandemic (44 per cent), compared to their more tech-savvy counterparts (28 per cent).
“Covid-19 exacerbated a trend of declining profitability in financial advisers’ businesses and those hit hardest were laggards in their adoption of various technology systems,” said Cameron Sharma, analyst at Investment Trends.
“Positively, nearly all advisers are now well advanced in their digital transformation journey and they are, in fact, not always eager for a return to ‘business-as-usual’.”
This research, which was a representative online survey of IFAs in the UK, was in line with data from Personal Finance Society and NextWealth published last year
The PFS and NextWealth found smaller firms, with only two to five employees, had been hit the hardest, with 83 per cent reporting a drop in revenue.
They found three quarters of advisers had seen gross revenues fall due to Covid-19, with a fifth forecasting a decline of at least 20 per cent.
This research also found that directly authorised firms were worse affected than appointed representatives, with nearly four in five (78 per cent) reporting a negative impact on gross revenue compared with 65 per cent of ARs.
Meanwhile, research from FundsNetwork, published in April this year found 57 per cent of advisers said their firms’ plans had been affected by Covid-19.
However, despite smaller firms and IFAs reporting a difficult year, some of the larger firms reported a profitable year over the course of the pandemic.
Last week (July 2), Chase de Vere reported in the year ending December 31, 2020 profits were up 2.5 per cent to £13.41m, with company turnover also increasing from £72.49m to £76.03m.
Frenkel Topping also saw its pre-tax profits jump 25 per cent as it said the first three months of 2021 had given cause for optimism for the rest of the year.
The advice firm, which specialises in asset protection for vulnerable clients, posted a pre-tax profit of £1.5m in 2020, up from £1.2m in 2019.
Additionally, Investec’s UK wealth and investment business posted an 18 per cent increase in operating profit for the year to the end of March after benefitting from a strong second half.
Tim Morris, IFA at Russell & Co Financial Advisers, said: “I remember several advisers, including myself, initially struggling with taking on new clients last year.
“We have a business built on meeting clients in person. I convinced most to convert to video calls and many want to remain with those for their reviews going forwards.
“However, completing paperwork was a challenge. We adopted the use of a previously under-utilised client portal. Most clients like using this, yet quite a few struggled. Especially elderly clients.
"And in a time where client vulnerability is a growing issue, we need to ensure we can service all clients effectively in a manner that works well for them.
“Where we can’t meet with clients in person, this means making our forms more digitally friendly going forwards.”
For the smaller firms, reflecting on the post-lockdown environment, the Investment Trends research found most advisers plan to continue using remote client engagement tools such as video calls, online scheduling solutions and online client portals, although one in six (18 per cent) intend to pare back video calls once restrictions are lifted.
Felix J Milton, chartered financial planner at Philip J Milton & Company, said: "It’ll be interesting to read next year's report as many of the changes that were implemented in the pandemic are likely to have bedded in to most firms' propositions, thus hopefully improving client outcomes and profitability for the firms."
Investment Trends' Sharma added: “It is abundantly clear that advisers need effective digital solutions, such as the client portal access that can be an invaluable channel to provide quality services at scale, to deliver operational efficiencies and create capacity to attract and onboard the right prospects.
“To facilitate a seamless client portal experience, advisers will be relying more heavily than ever on their investment platforms, financial planning software and CRM providers for greater integration and functionality improvements.”
What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know