The last 5 years of running the FABB report has seen distinct shifts in the operating environment for financial advice businesses. Our 2022 benchmarks illustrated how firms were becoming more cautious. Steady client numbers indicated that the health of firms was not in doubt, but growth plans were already beginning to be curtailed. Since the release of that report in September 2022, we have seen the continuation of firms ‘battening down the hatches’ to weather the escalating, ‘perfect storm’ of rising interest rates and inflation, coupled, of course, with regulatory change in the form of the new Consumer Duty.

In the starkest terms, we see that this has increased the pressure on fees with average fee charged to clients for ongoing financial advice having fallen from 2% in 2022 to 1.75% this year. Putting the client front and centre and providing value, is nothing new for financial advice businesses, but the pressure on fees in combination with the need to evidence the demonstration of value in the outcomes of clients, whilst protecting margins and profitability, is beginning to have a clear impact.

• Client numbers remain steady (54% report that there are around the same number as last year).
• Last year we reported that, for the first time, fewer firms were intending to recruit in the coming 12 months. We see a growth in this trend in 2023 with a further downward trend in intention to recruit staff.
• A particularly striking finding this year, is the proportion of financial advice professionals saying that they intend to sell the firm or exit the market in the next 18 months – at 16% this is threefold the number saying the same in 2022.

In addition to fees, client numbers and business planning, the report (which is free to download and can be accessed here) also looks at attitudes of financial advice professionals shaping the direction of travel of financial advice businesses. It details awareness and engagement with regulation and how advisers perceive the effect of regulation on their service to clients; explores the landscape of advice firm investment propositions; assesses cost of investing for advised clients and the cost of each element of the distribution chain – an obvious area of importance to advice firms in the age of Consumer Duty. In this year’s report, for the first time, we have taken a granular look at how the feedback of financial advice professionals who took part in our survey, differs between specific roles and explore the characteristics that define ‘financial advisers’ and ‘financial planners’.

In a further update to last year’s FABB, we translate the findings of the report to what they mean for the segments in our segmentation model. We illustrate what the differences are in business ambitions, technology choices and investment propositions across our five segments: build to grow, investment advisers, succession searchers, investment outsourcers and turnkey advisers.

When we released FABB 2022, Heather noted it was not all ‘doom-and-gloom’ with firms clearly demonstrating how they were preparing for the pressures, realised in this year’s edition. I would say the same positive outlook can be applied to this year’s results and that financial advice professionals and firms have real cause for optimism.

Fewer firms are saying they will add a new tech partner whilst more say they will discontinue use of one or more tech partners; whilst we see a decrease in the average time to prepare for the annual client review meeting, and an increase in confidence around making communications easier to understand for clients with vulnerabilities. These results make it possible to observe that firms are more sure-footed in their approach to refining the capabilities of their tech, and the delivery of their client proposition and that firms are well placed to emerge from this current period of turbulence.

As always, we welcome your feedback and encourage you to add your voice to our industry reports and research projects. Our next reports are our Adviser Tech Stack series: a report on back office and practice management systems, MPS Comparison Report and Platforms in the UKreport. We always welcome your input into our research either as a participant or in signposting us to questions and considerations you think require investigation. Please get in touch to find out how you can contribute to what’s next in wealth.