How to find a good financial adviser is a question many struggle with, most often at the point of retirement. Even if someone has happily contributed to a pension for many years and has built up a comfortable sum, doubts over how to convert that to an income often lead them to seek advice.
Others seek it earlier, when thinking about buying a home, having children or inheriting a lump sum. James Rainbow, head of UK at investment firm Schroders, offers another reason: “When your portfolio exceeds your annual income, your propensity to take advice goes up enormously.”
Last July, the Financial Conduct Authority brought in new rules known as the Consumer Duty to improve standards for financial services customers — including getting better support, clearer communication and requiring firms to put their customers needs’ first.
But a year on, a report from consultants The Lang Cat finds the new rules may be having a deleterious effect on those looking for financial advice. The number of people getting professional help has decreased from 11 per cent in 2023 to 9 per cent this year, with many advisers using the new Consumer Duty regulations as an opportunity to reduce — or rationalise — client numbers.
Four out of five advisers say it has made it harder for them to service clients, with more than half (55 per cent) ceasing to serve those with low investable assets as a result.
Who could have guessed this was going to happen? Oh yes, everyone.
“Advisers have had to soak up a lot of regulatory cost,” says Jamie Jenkins, director of policy at insurer Royal London. “Consumer Duty was never designed to reduce the advice gap, but the advice gap may be an unintended consequence,” he adds.
The fact of the matter is most financial advisers will welcome you with open arms if you fit the right “client profile” — which, of course, has nothing to do with your reason for seeking advice, and everything to do with how valuable you will be to the firm, and your capacity to pay its fees.
To qualify, you typically need to have £100,000 to invest or be on a fast track to that level of wealth. VouchedFor research found creating a financial plan with £100,000 of investments will cost £7,597, based on a median cost of £2,795 in initial charges, plus £4,802 in ongoing fees over the first five years.
Any less than that and you can expect a frostier welcome. Schroders’ research found that the share of experts prepared to advise clients with less than £50,000 to invest has dropped from 52 per cent in 2019 to 25 per cent in November 2023. And, by the way, if a financial adviser is prepared to take you on with only £50,000, be wary. He or she might be “bottom fishing” — maybe the business is struggling or the quality of advice is low. In any case, last year average advice fees were £196 an hour, according to VouchedFor, which will eat into a small portfolio.
Aside from the regulatory burden, the advice industry was already in something of a crisis with more demand than it has supply. Firms are struggling to recruit graduates; a few have had success with second careerists. Meanwhile, those who have completed their financial advice exams face a lack of trainee roles in firms.
“We need a younger, more inclusive and diverse generation of IFAs coming through,” says Ross Easton, head of platform proposition at Scottish Widows. Almost half of independent financial advisers are over 50, with three quarters planning to retire in the next decade, according to FCA data.
There is no definitive answer to why this disproportional ageing has happened in the financial advice industry compared to other professions, such as teaching and accountancy, where average ages are in the 40s.
Does it signal the decline of the industry? Andrew Tully, technical services director at Nucleus Financial, doesn’t think so. “Advice works, and we need to find ways to encourage more people to access it,” he says. “However, we also need to accept the advised cohort will only ever be a minority of people.”
Does it matter that fewer people are getting financial advice? Firms have not been keen to explore cheaper solutions after Vanguard UK had to close its low-cost financial advice arm after only two years.
Mike Ambery, retirement and savings director at Standard Life, says two things will help those who can’t afford or access advice. One is pension dashboards, a long-delayed government project to enable millions of UK savers to access their pensions information at the touch of a button, now scheduled to go live in April 2025. Another is the regulator’s ongoing Advice Guidance Boundary Review, which looks like it may allow people to “look at people like themselves” to help make decisions.
More radical solutions could lead the UK financial advice industry eventually to model that in Australia, which, per head, has far fewer financial advisers.
That hasn’t been a huge problem because Australia has to a large part solved the need for “at-retirement advice”. First, it has “pot follows member”, meaning people don’t lose track of their pension savings when they change jobs. Second, it has the retirement income covenant, where trustees of pension funds have obligations to help beneficiaries with retirement income strategy by providing a “default” solution. In the UK, a default is only provided up to the point of retirement. It’s a supercharged form of the damp squib that was “Investment Pathways”, introduced in 2021 by the UK’s regulator to prevent poor outcomes at retirement.
So while customers of all means should have access to good quality, affordable financial advice, reducing the need for professional advisers to give it to them at key points in their lives, such as at retirement, may turn out to be a more advantageous objective.
Moira O’Neill is a freelance money and investment writer. She holds F&C Investment Trust and City of London. X: @MoiraONeill, Instagram @MoiraOnMoney, email: moira.o’neill@ft.com