Financial advice firms are preparing for a storm – and it feels like we’re getting badly battered already.

As I write this, we’re polishing off the final edits to our 2022 Financial Advice Business Benchmarks report, our annual look at adviser businesses with the PFS. It’s been a pretty tumultuous 4 years (let alone the last four weeks!). 2019 was a year of optimism, 2020 of drastic adjustments, and 2021 was a year of finding out what the new ‘normal’ might look like.

Our most recent results from August 2022 suggest firms are becoming increasingly cautious. Advice businesses remain healthy – client numbers are steady, but growth plans are being curtailed.

• Client numbers are holding steady (but fewer firms say they took on more clients in 2022)
• Fewer firms plan to recruit in the next year compared with past surveys.
• Investment in tech is holding with plans for change being carried through but new projects are being shelved.

This softly softly approach makes sense – financial advice firms charge based on assets. As asset values decrease, so do revenues. In August, the outlook wasn’t great- that caution feels very sensible looking at news headlines today.

Financial advisers told us that average portfolio values were £352,129 in August. That is down from £404,437 a year ago. Clients pay an average of 68bps for on-going advice. My very simple maths suggest that advisers earn £2,394 on average per client, down £356 compared with last year. A 15% hit to revenue is significant.

That helps explain why more firms are looking to exit or sell and fewer firms are looking to hire. It’s not doom and gloom – the way I think about it, advisers are battening down the hatches. Businesses are healthy but they’re being a bit more cautious with growth plans.

The report is free to download. It includes a huge amount of data and insight on staffing, future plans,  compliance, Consumer Duty and investment propositions.

Our industry is characterised by a rich diversity of shapes and sizes of firm, operating models and preferences, and there is no “one-size- fits-all” benchmark. So as we look to the next set of challenges for our industry, the report introduces our segmentation model that is more aligned to how firms are organised and their future ambitions rather than to size alone. We reveal key differences in business ambitions, technology choices and investment propositions across our five segments: build to grow, investment advisers, succession searchers, investment outsourcers and turnkey advisers.

We welcome your comments and feedback. Please consider adding your voice to our industry reports and research projects. Our next reports are on sustainable investing, Consumer Duty and white-label platforms. We welcome input.

Heather