There were 286 fewer financial advisers advising on retail investment products in the year to December 2023. The number of firms fell 8.1% in the year. These numbers are based on the latest data from the FCA on the retail intermediary market.

Here’s some data and then I’ll offer my view on what it means.

• There were 4,654 directly authorised firms offering advice on retail investments in 2023 a decline of 8.1% year on year. That is a sharp decline after years of fairly steady numbers.

Number of firms offering retail investment advice

Source: FCA retail intermediary market data 2023

• The number of smaller firms fell more quickly than larger firms. There were 10% fewer sole traders in 2023 than in 2022 and 8% fewer firms with 2-5 advisers.
• Firms with 1-5 advisers made up 89% of all directly authorised firms from 2017 to 2021. That fell to 88% in 2022 and fell again to 87% in 2023. The decline isn’t enormous but is nonetheless evident.

Number of firms offering advice on retail investments

• The share of financial advisers working in large firms (over 50 advisers) increased again this year to 50%. That is up from 44% in 2017 and 47% five years ago (2019).

So far, this is a story of consolidation. The industry is consolidating to fewer large firms.

• From 2017 to 2022, the number of financial advisers offering investment advice increased year on year. Increases were modest (1% to 4% a year). 2023 saw a reversal of that trend with a 1% decline in financial advisers.

Number of staff that advise on retail investments

I also took a look at the number of on-going clients. There has been a lot of talk about financial advisers ‘firing’ or ‘offboarding’ clients as a result of Consumer Duty. The FCA data on clients is provided for all firm types, not just investment advice. There is little evidence of any significant change in offboarding clients.

• Total on-going client numbers grew 3% for the year, down from 8% growth year on year in 2022.
• Financial advisers ceased servicing 204,620 ongoing clients in 2023, up from 187,677 in 2022. The difference is 9%. Looking back over the past five years, there has been a c5% increase in the number of on-going clients that advisers have ceased servicing so the 9% figure is a slight increase with the past and one to watch.

My view

That’s a lot of data. I’d be interested to hear what you make of it.

What’s my take? The main story here is about consolidation. The numbers aren’t dramatic but we’re seeing a slow and steady shift in the shape of the adviser market toward larger firms. At NextWealth we are confident that small firms will continue to thrive but in varying shapes. Some will have fewer advisers but more client service staff. Most small firms will focus on a niche offering highly personalised service but to a limited target market. While we’re confident small firms will thrive, we think the number of advisers will continue to concentrate in bigger firms.

The other story is around client offboarding. The numbers don’t suggest anything dramatic – yet. Next year’s data might look different. At the point of submitting their RMAR returns in 2023, many firms were still working out reporting and approach for Consumer Duty. We’re hearing from platforms that the number of orphan clients ticked up significantly in H1 2024.

And finally, this data suggests that the market isn’t thriving. We’re not bringing in enough new blood – both in terms of new clients and financial advisers. I advocate measuring firm size by number of employees rather than advisers, but I am using the data I’ve been given here so forgive me!

The regulatory burden is high and growing. Markets have been tricky and this week’s sell-off won’t make that any rosier. I remain energised by this sector. Need for advice is high. Demand for advice is high. New models are coming to market all the time. It feels like a market on the brink of taking off. But it also feels like we’ve got our feet stuck in the mud. Let’s take flight.