United Kingdom (UK) Financial Advisors 2021 - Trends, Concerns, and Opportunities
Summary
The UK’s financial advisors have proved remarkably resilient to the COVID-19 pandemic, with many reporting an uplift in demand for advice and average revenues increasing for all sizes of firms. Nonetheless, there are challenges. Increasing professional indemnity insurance (PII) premiums and a high Financial Services Compensation Scheme (FSCS) levy are putting pressure on costs, while a looming wave of new regulation such as the Consumer Duty proposals is pushing many smaller advice firms to sell their businesses. These pressures - combined with an influx of private equity money into the industry - is fueling a growing wave of consolidation, which is slowly but surely changing the shape of the market. Addressing the advice gap and considering new business models arguably provides the greatest opportunities for financial advisors, by allowing them to expand beyond their traditional client base of older, affluent consumers. However, banks and investment managers are also expanding their wealth operations and are starting to prove a greater competitive threat.
This report discusses the key trends shaping the UK market for financial and investment advice over the course of 2021. It covers the size and growth of the financial advice market in the UK (including profitability), merger and acquisition activity, as well as the key threats and opportunities cited by advisors.
Scope
- The number of financial advice firms fell by 1.9% in 2020, with 99 fewer firms in the market compared to 2019. Significantly higher levels of consolidation in 2021 are likely to see the number of firms fall further still.
- Financial advisors are the most used channel for pensions and investment advice, with 32.2% of consumers turning to advisors for pensions and 33.5% for investments.
- 27.0% of financial advisors consider a financial market downturn as the key threat to their business. On the other side of the coin, 30.0% see it as the greatest business opportunity.
- Understand the latest data on the size and composition of the UK financial advice market
- Find out about the latest M&A deals in the consolidating financial advice market
- Learn who uses financial advisors and what their motivations are for doing so
- Discover what financial advisors consider to be the main opportunities and threats for their business
- Ascertain how financial advisors are using platforms and find out which platform providers are their preferred choices
- Gain insight into how financial advisors determine their investment management strategy
- Executive Summary
- Market overview
- Key findings
- Critical success factors
- Financial Advice Firms Overview
- The number of advice firms fell by 1.9% in 2020
- Table Figure 1: The number of financial advice firms and financial advisors fell in 2020
- Table Figure 2: 85% of financial advice firms have independent status
- Consolidation is leading to the creation of more large financial advice firms
- Table Figure 3: The number of mid-sized firms dropped noticeably in 2020, while the number of firms with more than 50 advisors continued to increase
- Table Selected financial advisor acquisitions, 2021
- Table Examples of private equity investments in the financial advice sector, 2021
- Table Planned acquisitions still to be completed or completed early 2022
- Average revenues were buoyant in 2020, but rising costs are a dampener on profit growth
- Table Average revenues (GBP) of financial advice firms, 2016–20
- Table Average pre-tax profit (GBP) of financial advice firms, 2016–20
- The number of advice firms fell by 1.9% in 2020
- Financial Advisors and their Customers
- Financial advisors are the leading channel for investments and pensions
- Table Figure 4: Consumers typically use IFAs for pension and investment advice
- Table Figure 5: IFAs are the key channel used for pension and investment advice
- Table Figure 6: Financial advice firms dominate the retail investment advice landscape
- Financial advisors’ clients tend to be older, affluent individuals
- Table Figure 7: Mass affluent and HNW clients account for the majority of financial advisors’ AUA
- Table Figure 8: Saving and investment product holdings increase in line with affluence
- Table Figure 9: The use of IFAs for inv8estment advice increases with age
- Retirement is the number one driver for seeking advice
- Table Figure 10: Retirement is the number one reason that clients seek advice from a financial advisor
- Table Figure 11: The majority of pension pots are fully withdrawn without advice or guidance
- Table Figure 12: 23.3% state that a professional recommendation is the top reason in determining who to consult for advice
- Financial advisors are the leading channel for investments and pensions
- Opportunities and Threats
- Threats: A market downturn, increased competition, and the regulatory burden are the key concerns of advisors
- Table Figure 13: 27% of financial advisors consider a potential financial market downturn as their key threat
- Financial market downturn: Threat or opportunity?
- Table Figure 14: Over the course of 2021, the FTSE 100 recouped much of the ground lost in 2020
- Banks and investment managers are increasingly targeting investors directly
- Table Figure 15: Examples of UK banks’ robo-advice services
- Regulation came to the fore again in 2021
- Opportunities: A market downturn, new business models, and digitization offer the greatest business opportunities
- Table Figure 16: 30% of financial advisors consider a financial market downturn as an opportunity
- Developing new business models to improve access to financial advice
- The aging population represents a growth opportunity
- Table Figure 17: The over-65 population is set to steadily increase year on year to 2032
- Table Figure 18: Savings and investment product penetration increases with age
- Table Figure 19: 18–24-year-olds are more likely to turn to a bank for investment advice than an IFA
- ESG investing is becoming more important to investors
- Threats: A market downturn, increased competition, and the regulatory burden are the key concerns of advisors
- Working with Financial Advisors: Platforms and Investment Management
- Service provision: Platform usage is well established, with a strong degree of competition
- Table Figure 20: Platform usage increases in line with the size of the advice firm
- Table Figure 21: Advisors are placing increasing importance on the administrative and reporting capabilities of platforms
- Table Figure 22: The focus on investment returns lessened in 2021 compared to 2020
- Table Figure 23: Lower costs are a key driver for platform switching
- Table Figure 24: Embark is the most used platform thanks to its acquisition of Alliance Trust Savings
- Table Key platform acquisitions, 2016–21
- Service provision: The investment management needs of financial advisors are changing
- Table Figure 25: In-house asset management leads the way
- Table Figure 26: 18.2% of financial advisors that outsource to DFMs cite a good investment track record as their number one provider requirement
- Table Figure 27: Barclays Investment Solutions is the most used discretionary fund manager among financial advisors
- Service provision: Platform usage is well established, with a strong degree of competition
- Appendix
- Abbreviations and acronyms
- Definitions
- Methodology
- Secondary sources
- Further reading
- About GlobalData
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