A third of IFAs expect their business turnover to drop this year as a result of higher expenses, volatile markets and lower fees.
Some 31 per cent of advisers expect a reduction in turnover in 2023, according to the Lang Cat’s state of the nation report, released today (January 19).
This lack of confidence is not due to an expectation that there will be an exodus of clients, rather that the impact of high inflation and volatile markets will raise costs and impact profit.
Source: Lang Cat
Indeed, 94 per cent of the 605 advice firms surveyed for the report said they are consistently adding new clients to their books.
Instead, the anticipated drop in turnover is attributed to higher business costs due to inflation.
Higher operating costs
Nearly nine in 10 IFAs expect their operating costs specifically to rise in the next six months, according to separate research from Abrdn.
Of the 302 UK financial advisers surveyed by Censuswide on behalf of Abrdn, 39 per cent said they were concerned that cost increases could threaten their businesses in 2023.
Management teams will also be wary of turning to increased feesJonny Black, AbrdnJonny Black, strategic director at Abrdn said firms must walk a fine line when managing these pressures.
“There is only so much they can do to reduce operational costs without affecting service levels and their operational effectiveness.
“Management teams will also be wary of turning to increased fees.”
Abrdn’s research shows two in five firms have made, or plan to make changes to their business to manage the impact of increased overhead costs.
These include moving offices (29 per cent), investing in new platform technology (28 per cent), or hiking fees (26 per cent).
Portfolio performance
One reason for the anticipated drop in turnover is the relatively poor performance of portfolios in 2022.
This will have impacted advice firms whose payment models are based on a percentage of assets under management, as the value of those assets will have dropped in the year.
The traditional asset allocation model, 60 per cent equities and 40 per cent bonds, lost 17 per cent last year according to Blackrock.
We are confident that 2023 will herald a lot of opportunityScott Draycon, Lyndhurst Financial ManagementThis was a step-change from the usual performance of the strategy, which saw average returns of around 7 per cent between 1999 and 2022.
For Scott Draycon, a senior financial adviser at Lyndhurst Financial Management, the flow of new business in 2022 has more than made up for the market volatility and higher costs.
The majority of new clients approach Lyndhurst after a big life event, such as a divorce, death in the family or job loss, Draycon said, and most are referred by other clients.
“I think because of the economic downturn, what is going on in the political world, and of course coming out of the pandemic, people are more comfortable talking about [money] and asking someone to pass on the name of a financial adviser.”
He added that the influx of clients his firm has seen has meant they are not concerned about the impact of inflation on the business.
“We are confident that 2023 will herald a lot of opportunity for new business to fill that gap”.
Rich Mayor, senior analyst at the Lang Cat and co-author of the report, said given the harsh conditions at the moment, it is encouraging that advice businesses continue to be resilient and even smaller firms are adding clients on a regular basis.
Our data suggests advisers remain as resilient as everSteven Nelson, Lang Cat“In turbulent markets more time has been spent reassuring clients of their existing financial plans, and in some instances taking what they see as remedial action if clients have swayed from their paths as a result of markets,” he said.
“We’ve seen a heck of a lot of acquisition activity from consolidators and the largest firms in the UK, and the landscape for this activity remains favourable for those looking to acquire.”
Steven Nelson, insight director and the other co-author, added: "While broader markets have been tough for businesses our data suggests advisers remain as resilient as ever.”
sally.hickey@ft.com
