Engaging with UK Financial Advisors: Trends, Concerns, and Opportunities

Engaging with UK Financial Advisors: Trends, Concerns, and Opportunities


With the opportunities afforded by the 2015 pension freedoms and an aging population in need of retirement advice, growth prospects are strong for financial advisors. The UK Financial Advisor market is in strong shape. Typically considered a shrinking market, the number of advisors and advice firms are increasing, while average revenues are also on the up. And investor demand for advice remains strong, particularly for those approaching or in retirement.

But there is a heavy and growing regulatory burden, which is a notable driver for those exiting the profession and the resulting high level of acquisition activity. Regulation is pushing remaining advisors to rethink their business models - whether that involves switching to restricted status, using independent financial advisor (IFA) support services, or even restructuring propositions and outsourcing investment management.

Most advisors are loath to switch to restricted status and hesitant to outsource, but arguments around increasing time spent with clients and reducing the regulatory burden are the most compelling. As lower-cost alternatives to full discretionary management outsourcing, these may convince advisors to try outsourcing investment management.

This is all set against the rise of automated investment services, which is currently low on the list of advisor priorities but which the Financial Conduct Authority looks set to put firmly on the agenda in 2019.

The report Engaging with UK Financial Advisors: Trends, Concerns, and Opportunities, is a comprehensive analysis of the UK Financial Advice market, with a focus on key issues affecting IFAs and their businesses. The report draws its analysis from 2018 IFA Survey and 2018 UK Investor Survey.

Key Findings

  • There were 5,281 financial advisor firms at the end of 2017, of which 87% were independent. Financial advisors also accounted for 58% of retail investment sales in H1 2018.
  • 28.3% of investors typically use financial advisors to arrange investments, the second most used channel behind arranging investments directly with providers (used by 31.4% of the UK investor population).
  • Regulatory compliance is considered the top threat by 62.5% of advisors. For the 8.4% of advisors looking to exit the profession, regulation is the second most cited driver after retirement.
  • 39.1% of advisors outsource investment management to discretionary fund managers (DFMs). For those that do not, cost is the most cited barrier.
  • Overview of the UK IFA competitive landscape, analyzing advisor numbers, business models, and industry consolidation trends.
  • Key demographics accessing financial advice and the reasons behind them doing so.
  • Threats and Opportunities for IFAs trying to expand their business.
  • Impact of Brexit and MiFID II on the UK financial advice industry.
  • Factors influencing IFAs’ choice between independent and restricted models.
  • Insight into how product providers, including platforms and DFMs, can engage with the IFA industry.
Reasons to buy
  • Understand which segments of the UK investment market offer the highest growth potential.
  • Identify the main pain points of IFAs to engage with them effectively.
  • Discover what is driving consolidation in the UK IFA market in order to understand how you can benefit from the trend.
  • Learn how IFAs choose their partners and product providers to increase your penetration in the market.

  • Executive Summary
    • A buoyant UK IFA market carries a heavy regulatory burden
    • Key findings
    • Critical success factors
  • The UK financial advisor market is buoyant
    • The number of financial advisor firms and advisors is increasing
      • There were 26,311 financial advisor firms at the end of 2017
        • Table Figure 1: The number of financial advisor firms and advisors is increasing, with the majority of firms consisting of five or fewer advisors
      • The majority of financial advisor firms are independent
        • Table Figure 2: Almost 90% of financial advisors have independent status
      • Average revenues from retail investments are on the up
        • Table Figure 3: Retail investment fees and charges are the predominant revenue type for advisors
        • Table Average retail investment revenues of financial advice firms (£), segmented by number of advisors, 2015-17
    • Financial advisors are the leading channel in the sale of pensions and investment products
      • Financial advisors accounted for 58% of pensions and retail investment product sales in the first half of 2018
        • Table Figure 4: Bank-led retail investment product sales have collapsed since the RDR
      • Outside of pension investments, investors tend to arrange investments directly or via a financial advisor
        • Table Figure 5: Investors largely arrange investments directly or via a financial advisor
        • Table Figure 6: Financial advisors dominate the financial landscape both in terms of number of companies and number of advisors
      • The expertise of financial advisors is the key draw for investors
        • Table Figure 7: Investors that use financial planners are actively seeking out investment expertise
        • Table Figure 8: Those investing directly have a strong preference for managing investments themselves
    • Mass affluent individuals are the mainstay of the advice market, with retirement a key prompt for seeking advice
      • Table Figure 9: Mass affluent clients typically account for the majority of an advisor's book
      • Table Figure 10: Mass affluent investors are more likely to hold investment products than mass market or emerging affluent consumers
      • Retirement is a key driver for seeking advice
        • Table Figure 11: Retirement is the number one prompt for clients to seek financial advice
        • Table Figure 12: Savings, pensions, and investments are the key products that prompt investors to turn to a financial advisor
  • Regulation is considered the greatest threat and an aging population the biggest opportunity
    • Threats: compliance is the chief concern for advisors, while competition from robo-advisors causes little worry
      • Brexit, industry consolidation, and the tax treatment of pensions are also considered key threats
        • Table Figure 13: Staying compliant with regulation is the most widespread concern among financial advisors
      • Advisors are less concerned about the competition posed by robo-advisors
    • Brexit is the most imminent threat and will bring increased volatility
      • Client communication will be key in guiding clients through volatility
      • Advisors servicing British expats in Continental Europe face particular challenges
    • The regulatory burden for financial advisors shows no signs of diminishing and is particularly hard on sole advisors
      • 2018 was a big year for new regulation, with more set for 2019
      • MiFID II brought in numerous changes for advisors, and the impact continues into 2019
      • The impact of MiFID II on clients so far has been limited, but may change as the first cost and charges disclosures are released
      • The regulatory burden is of particular concern to single IFAs
        • Table Figure 14: Single advisors are most concerned about staying compliant with changing regulations
    • Industry consolidation: perceived as both a threat and an opportunity
      • Industry consolidation continues apace
        • Table Selected IFA acquisitions in 2018
      • 8.4% of advisors are considering exiting the profession, providing a steady pipeline for acquirers
        • Table Figure 15: 8.4% of financial advisors are thinking about exiting the financial advice profession
      • Retirement is the number one driver for exits, but regulation is also a notable factor
        • Table Figure 16: Approaching retirement is the key driver for advisors exiting the profession
        • Table Figure 17: A number of providers offer regulatory, compliance, and marketing support to IFAs
    • Fears over pension tax relief cuts have yet to be realised, but linger on
      • The October 2018 budget did not make the much-feared raid on pension tax relief
    • Opportunities: the UK's aging population represents the greatest opportunity
      • Changes to pension laws, DB to DC transfers, and social care funding are also considered notable opportunities
        • Table Figure 18: The UK's aging population is considered the greatest opportunity by financial advisors
    • The UK's aging population provides a growing customer base for financial advisors
      • By 2041 there will be almost 4 million additional adults of pensionable age
        • Table Figure 19: There will be noticeable increases in the working population and those of pensionable age by 2041
      • The aging population will have not only retirement planning requirements but also social care funding needs
    • DB to DC transfers are an opportunity, but are not without risk
      • The value of DB to DC transfers is growing
      • More advisors are obtaining permission to advise on DB to DC transfers
      • However, the FCA is putting advisors under increasing scrutiny and professional indemnity premiums are rising due to mis-selling fears
  • To target financial advisors effectively, providers must consider cost, regulation, and care for end clients
    • There is limited scope for providers to encourage advisors to become restricted
      • Restricted advisors accounted for 11% of the market at the end of 2017
        • Table Figure 20: The volume of advisors turning restricted has tapered off significantly since 2015
      • Just 3% of current IFAs are considering switching to restricted status
        • Table Figure 21: Over 90% of IFAs would not consider switching to a restricted model
      • For independent advisors considering switching, the opportunity to spend more time with clients is key
        • Table Figure 22: To encourage advisors to switch to restricted status, networks and providers should focus on client time and easing the regulatory burden
    • Service provision: platform usage is embedded, but competition is robust
      • 91% of advisors use an investment platform
        • Table Figure 23: Financial advisors tend to work with multiple platform providers
      • Cost is the key consideration for advisors when selecting a platform, but product range also comes into play
        • Table Figure 24: Low cost is the key requirement of a platform package, followed by investment product range
      • Advisors review providers annually, and 7.5% are considering switching provider
    • Service provision: demand for investment management outsourcing is solid, but reservations remain
      • 39.1% of financial advisors outsource investment management to a DFM
        • Table Figure 25: 39.1% of financial advisors outsource investment activities for personal clients to DFMs
      • The ability to focus on planning and client relationships are the greatest draws to outsourcing, while cost is the biggest barrier
        • Table Figure 26: The ability for advisors to focus on financial planning is the key reason to outsource to a DFM
        • Table Figure 27: Cost is the number one barrier to outsourcing to a DFM
      • A good investment track record is the top requirement of advisors looking to outsource
        • Table Figure 28: A good investment track record and excellent customer service are the key requirements of advisors outsourcing to DFMs
  • Appendix
    • Abbreviations and acronyms
    • Definitions
      • Article 3 exempt firms from MiFID
      • DB pension
      • DC pension
      • Emerging affluent
      • HNW
      • IFA
      • Liquid assets
      • Mass affluent
      • Mass market
      • OADR
      • Restricted advisor
      • SPA
    • Methodology
      • GlobalData's 2018 IFA Survey
      • GlobalData's 2018 UK Investor Survey
    • Secondary sources
    • Further reading
    • About GlobalData
      • Table Figure 29: About GlobalData

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