New research published by FE fundinfo shows that the financial advice industry grew in 2019 despite rising costs and increasing regulatory requirements.
The research reports that 79% of financial advisors surveyed saw an increase in new clients in 2019 whilst only 1.4% reported a decrease.
The report also highlights that environmental, social and governance (ESG) and retirement are both key growth areas for the industry with around half of respondents citing each respectively in their responses.
52% of advisors saw business turnover increase by 5% last year, whilst 30% reported an increase of 10%.
The 2020 Financial Adviser is the fifth such survey to be run by the fund data provider, FE fundinfo. Speaking on its website, the data provider commented that the research “reveals that the demand for financial advice has been driven by ever more complex financial needs…”
That’s in addition to “…low growth in DIY investing and a genuine lack of alternatives to spending time with a professional adviser.”
The report also reveals an increase in the number of advisors turning to third-party providers to manage their workload. “A majority (57% of advisers) are now using third party model and managed portfolios in some capacity, which is up from 50% last year.”
Explaining the trend for relying on third parties, Head of FE Investments, Rob Gleeson said, “Many [IFAs] recognise that they are not experts in fund selection, so prefer to concentrate their time on providing due diligence around those that are.”
Rising costs and regulation
The majority (85%) of advisors who responded to the survey reported an increase in operational costs in 2019 and over half cited ‘regulatory burden’ as their biggest concern over the period.
One-third of respondents said that staffing costs were their primary financial concern whilst a quarter reported that regulatory costs had become more prominent. 15% reported that an increased focus on technology was increasing costs as well.
Environmental, Social and Governance (ESG)
More than 85% of respondents said they are already, or will soon be, incorporating ESG factors into propositions. There does, however, seem to be a lack of clarity in this area, with almost two-thirds stating that they don’t believe their clients fully understand what ESG investing means.
FE fundinfo Regulation Manager, Mikkel Bates said, “it is unlikely that many [investors] have considered the practicalities of how, for example, an environmentally-friendly investment may not be sustainable, or vice versa.
“…as an industry we must do more to provide clarity and transparency.”
Retirement
The report also uncovers that nearly half (48%) of respondents now have a dedicated retirement solution, up from 35% in 2018.
Summarising, Rob Gleeson said, “…even for those investing in vehicles like Self-invested Pension Plans (SIPPs), there is no guarantee of long-term income.
“We need to reframe attitudes to risk in retirement in order to provide a long-term sustainability of income.”
