As the year races to a close, it is naturally a time to reflect on the major themes of the year. We share four of them below. And we highlight two trends to expect in 2023, though our January newsletter is focused on the main themes for the year ahead.

1.       Battening down the hatches: Where 2020 was a year of drastic adjustments and 2021 was a year of finding out what the new “normal” might look like, 2022 saw advice firms become increasingly cautious. Advice businesses remain healthy; client numbers are steady. Yet growth plans are being curtailed. Only 40% of financial advice professionals have plans to hire staff compared with 59% the previous year. (Source: FABB) 

2.       Price pressure: While price pressure is evident across the supply chain, fees for asset management are falling fastest. This is shown in NextWealth’s recent MPS Proposition Comparison report, where we quantified a sharp drop in fees year on year, from 1% to 0.67%. DFMs have shaved their fees only slightly — the real drop is in the OCF, down from an average of 0.75% to 0.46%. This is, of course, further evidence that there is a strong correlation between pricing power and proximity to the customer. Asset managers in an MPS are two-steps removed.

3.       Operationalising processes: Financial advice firms are increasingly focused on operationalising processes in the business. Although there was a lot of tech adoption during Covid, firms are now concentrating on embedding the technology into their organisations and developing the workflows and processes that sit around that tech. Appetite to adopt new tech is certainly affected by lower revenue. (The 7% fall in the FTSE All Share in the year to September 30th corresponds to similar decreases in revenue for advice firms). The other driver of this is Consumer Duty obligations and the need for consistent evidence that established processes are being followed.

4.       Consolidation of financial advice businesses: The financial advice market is consolidating with a decline in small firms and a rise of larger ones. This is increasing price pressure for asset managers, DFMs and platforms, as well as increasing the risk of lock-out as firms streamline processes and decision-making, particularly on investment and platform choice.

Looking ahead:

1.       Value versus performance: Our research on Consumer Duty implications revealed that while there is a clear shift from product advice to planning, financial advisers continue to rely on performance of investments to demonstrate their value. Consumer Duty rules are forcing firms to evidence value based on outcomes. Consumers told us that the real value of financial advice is the peace of mind it brings. An advised client gave us our favourite quote for the research: “One hundred million percent I sleep better at night because my financial adviser is on top of it.” 2023 will bring a focus on quantifying the value of sleeping soundly at night.

2.       Platform consolidation and proliferation: The platform consolidation story is not straightforward. While some believe scale will bring down cost, the past few years have brought a proliferation of new platforms. Acquisitions have aggregated businesses but assets have not been consolidated, eroding many of the economies of scale. At the same time, nimble tech-first providers are allowing financial advice firms to offer their own platforms. Although third party platforms will consolidate, the proliferation of platforms will likely continue. (Source: Platforms in the UK) 

• Patrick Thomson, JP Morgan Asset Management
• Jackie Leiper, Embark
• Stephen Bird, abrdn
• Neil Moles. Progeny
• Justin Onuekwusi, LGIM
• Richard Romer-Lee, Square Mile
• Dave Ferguson, Seccl