Advice firms are “really pulling back” their growth this year as market uncertainty places pressure on their portfolios, new client acquisition and plans to change their technology.
The average client portfolio size has fallen £52,308 in the past 12 months, from £404,437 to £352,129, according to the latest Financial Advice Business Benchmarks report by NextWealth and the Personal Finance Society.
Down to near 2020 levels, the report said most of the gains made in 2021 were wiped out by harsh market conditions.
The proportion of firms growing has been tailed back.Heather Hopkins, NextWealthOf the 327 advisers surveyed between July and August, those working with new clients was less than half (46 per cent) this year, down from 65 per cent in 2021.
“Client numbers are steady but fewer advisers say they are taking on more clients,” the report said.
Firms are also cutting back on hiring plans. Some 40 per cent of respondents said they are looking to take on new staff, compared with 59 per cent last year.
Around half of larger firms are still looking to recruit, but smaller firms were the least likely to be planning for staff hires.
The report said following a resurgence in recruitment plans throughout 2021, recruitment for all roles within the advice firm the past year has fallen from this post-Covid bounce back period.
Staff is the top cost for advice firms today. NextWealth’s managing director, Heather Hopkins, told FTAdviser firms are feeling the management stretch, she said: “Where do you train these people before they come into firms? There are big recruitment efforts in larger firms, but it’s not enough.”
Technology spend has taken a hit too. Across the board advice firms spent 9 per cent of their proportionate revenue on technology over the past year. This was down from 18 per cent in 2021.
For around a third of respondents, the 9 per cent spent equates to up to £5,000 a year.
“This is our fourth benchmark report,” said Hopkins.
“It’s always been quite an optimistic outlook. But we’re seeing advisers are really pulling back. The proportion of firms growing has been tailed back.
“If you have 5-10 people in your business, adding a couple of people is a big business decision. And there’s a lot of uncertainty at the moment.”
Hopkins said the vast majority of advisers charge based on assets, with the average fee sitting at 68 bps.
“If you’re earning based on fees of assets, taking into account the average £52,308 dip in portfolio size over the last year, this is an income drop for advisers,” she explained.
“I think we’ll see more tiered fee structures as firms rejig what clients they’re focusing on.”
The report did note that advisers are working with younger clients compared with last year.
IFAs said 60 per cent of their clients were over the age of 55, down from 70 per cent in 2021. They also said 20 per cent of clients their clients were under the age of 45 - up from 12 per cent last year.
"Some firms are turning their attention to younger clients and experimenting with business models and tech-enabled approaches to attract the next generation, and to improve engagement with a wider demographic," the report said.
ruby.hinchliffe@ft.com
