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Demand For Financial Advice Grows, As Does Compliance - Survey

Jackie Bennion

21 April 2020

Suspend current sentiment and cast your mind back to the pre-pandemic times and despite rising costs and more regulation, UK financial advisors reported a growth in turnover and new clients in 2019, according to research from released yesterday that tapped sector sentiment at the end of last year.

Although views predate the COVID-19 outbreak, the firm emphasised that results in Surfing the Wave: How financial advisors thrived in 2019 despite rising costs and increasing regulation -- its fifth annual survey-- provide a good snapshot of sector health, with four-fifths of advisors saying that they had boosted new client numbers and turnover, with a third saying turnover was up by over 10 per cent for the year.

The funds researcher polled 271 financial advisors across the UK in November and December on a host of topics ranging from revenue drivers, rising overheads, and the impact of MiFID II on investment and outsourcing trends, and expansion in retirement planning and ESG.

Positively, the poll showed that demand for financial advice was being driven even more by low-growth in DIY investing, demand for more complex financial advice, and a genuine lack of a good subsitute for time spent with a professional advisor.

Less encouraging was growth being offset by added compliance. Around 85 per cent reported larger operational costs for the year. These were pretty evenly spread: 33 per cent put staffing as the biggest concern, roughly a quarter listed professional indemnity insurance and keeping up with compliance, respectively, as top burdens, and 15 per cent blamed rising technology costs.

Outsourcing also saw a year-on-year increase, especially to manage their investment propositions. It is not a surprise as “most IFAs are not investment professionals, but rather lifetime financial planners," head of FE Investments Rob Gleeson said. Acknowledging that they aren't experts in fund selection, they prefer to focus "their time on providing due diligence around those that are," Gleeson said.

Environmental, Social and Governance (ESG) investing moved up the priority list but the survey revealed a gulf between how ‘responsible’, ‘ethical’ and ‘sustainable’ investing are being perceived. “Investors may have a broad sense of what ESG investing involves, but it is unlikely that many have considered the practicalities of how, for example, an environmentally friendly investment may not be sustainable, or vice versa,” Mikkel Bates, regulation manager at FE fundInfo said. As an industry, “we must do more to provide clarity and transparency."

Asked for comment on priorities among IFAs in the wake of the COVID outbreak, FundInfo said that it "unfortuntaely" had no "subsequent context in relation to the report."

Its 2019 research also reflected calls by the Financial Conduct Authority to provide more retirement options in 2020 for non-advised clients. Prior to relaxing pensions restrictions, retirement planning was a fairly straightforward affair, with many investors paying into an annuity. “Now, even for those investing in vehicles like Self-invested Pension Plans (SIPPs), there is no guarantee of long-term income." Attitudes to risk in retirement need to be "reframed,” Gleeson said.

The survey showed that nearly half (48 per cent) of advisors now have a dedicated retirement proposition, up from just 34 per cent the previous year.