When looking at what is in store for advisers and clients, it is possible to find cause for optimism – if you look hard enough.
When it comes to the financial landscape through which advisers are navigating clients, it seems highly likely that inflation will fall further in 2024, taking interest rates down with it, although many experts predict the latter will not happen until later in the year.
That is the good news.
On a less positive note, the next 12 months are widely expected to be characterised by economic stagnation and a cost of living crisis that is only slowly abating.
The Institute of Fiscal Studies forecasts that real household disposable income will shrink further in 2024, thanks to interest rates staying higher for longer and ongoing tax rises.
According to the National Institute of Economic and Social Research, UK GDP is projected to grow by just 0.4 per cent in 2024, with a 60 per cent risk of entering recession by the end of the year.
It also expects inflation to remain above the government’s 2 per cent target until 2025, falling to around 3.9 per cent by the end of 2024.
Challenges for clients
All the signals point to challenging times ahead. While inflation and the wider financial situation will affect some clients more than others, advisers have a big job on their hands.
The cost of living crisis has already seen record outflows from advised platforms.
According to data from the Lang Cat, total outflows from advised platforms reached £38.1bn in the first three quarters of 2023 – 30 per cent higher than the £29.2bn recorded in the same period in 2022.
The consultancy says the increased outflows are down to more clients struggling to deal with cost of living challenges or moving from investments to cash amid market uncertainty.
Those approaching or in retirement are likely to be feeling particularly concerned about their finances.
Firms are charged with helping clients through a crisis that is also impacting their own ability to remain profitable. More than two-thirds (67 per cent) of advisers surveyed recently by BNY Mellon said they think clients will have to postpone retirement due to the cost of living crisis, while 56 per cent expect retired clients to reduce pension withdrawals in order to protect their pot, and 15 per cent think some clients may be forced to return to work.
Around two-fifths expect to see more clients using housing equity (44 per cent) and cash savings (42 per cent) to meet income requirements over the next few years.
Challenges for advice firms
All of this adds up to tricky times for advisers too, especially when clients are cutting back. Firms are charged with helping clients through a crisis that is also impacting their own ability to remain profitable.
While raising fees to offset higher costs may be an option for some firms, for others it can feel hard to justify increasing charges in the current environment, especially with the recent consumer duty spotlight on delivering value.
An alternative option to reduce the pressure on squeezed profit margins is to improve efficiency and keep costs down without undermining their quality of service.
It is well established that effective adoption of technology can improve efficiency and overall business performance while reducing the cost of servicing clients.
The evidence is compelling: the most recent Intelliflo e-Adviser Index, which analyses a firm’s business metrics alongside its use of Intelliflo Office, shows that advisers who use all parts of the system generated per adviser 54 per cent more revenue and 76 per cent more ongoing revenue than firms using only the core functionality.
Our recent Advice Map of Britain, which used data from 3mn advised clients to identify who and who is not taking advice, found several factors impacting the likelihood of someone seeking advice.
Allowing advisers to concentrate on the planning and emotional aspects of the advice process boosts client retention.It highlighted a broad swathe of individuals who are not currently served by the financial advice industry, including those in certain locations, single people and the young.
By using technology more extensively in the advice journey, firms can extend their service to reach different demographics, helping more people build financial resilience.
Embedding technology into the advice journey enhances the important human element of the process, by taking care of the relatively straightforward but onerous tasks.
This frees advisers to focus on providing clients with greater support and reassurance, which are valued even more highly when times are difficult.
Allowing advisers to concentrate on the planning and emotional aspects of the financial advice process, and leaving technology to pick up the admin burden, boosts client retention while also managing costs, allowing the firm to meet client expectations both now and in the longer term.
The outlook may be challenging for the coming year, but technology provides an opportunity for advice firms to help people navigate the current climate and at the same time secure their own future.
Nick Eatock is chief executive of Intelliflo
