At the same time, many aspects of financial planning are becoming more complex, particularly around retirement, and require more sophisticated options Rather than the relatively straightforward advice required for clients who already have defined benefit schemes and property wealth, advisers need to navigate a new generation of retirees whose wealth, lifestyle and personal affairs are more diverse. It requires a personalised touch that is more expensive to deliver.
Then there are the curve balls: the October Budget changed the parameters for providing financial advice in retirement. In the BNY Investments and NextWealth report, ‘Retirement Advice in the UK: Time for change?’, one adviser commented: “When something like the Budget happens, you have to revisit everything and check whether your understanding is correct, whether the market has moved on.”
Another said that the budget would require more personalised advice. “We’re going to have to start looking at a different way of creating income. The old way, we’d use pensions where necessary but if we could defer them, we would spend down personal assets. Now it’s going to be very personalised, looking at – whether they concerned about inheritance tax (IHT), what options do we have, what planning do we need to do?”
There is a question as to what extent these problems contribute to an ever-widening advice gap. They certainly contribute to rising costs, which inevitably impacts a firm’s ability to meet client demand. A recent survey from consultancy group, The Lang Cat, found that only 9% of consumers have paid for financial advice in the past two years, down from 11% in 2023. The same survey also showed that 55% of adviser respondents had already stopped serving clients as a result of Consumer Duty1.
Regulation
The BNY Investments/NextWealth survey shows that a significant minority of advisers believe regulation limits the wider delivery of financial advice. Almost half (48%) of advisers list it as a constraint, increasing the time and cost to deliver advice. In particular, for 47% of advisers, the FCA’s thematic review of retirement income advice has negatively impacted their ability to meet demand.
This burden exists even though the majority of advice businesses needed little or no changes to their processes. The report found that only 15% of advisers needed a significant change to the content or format of their regular reviews as a result of the retirement advice review. A fifth said that change was needed to their record keeping.
One outsourced paraplanner said: “We’ve been through the retirement income review checklist from the FCA, and we’ve built our own so that it can just sit alongside the files that we’re doing. But from what I can see, there’s not been a massive amount of difference between what they were doing before and what they were doing after, because they were doing everything that they should have been doing before anyway. So it’s more a case of just making sure that everything is better documented.”
Consumer Duty has also brought significant consequences, with implications for the way advisers communicate, deliver support for clients, deal with vulnerable customers, and recommend products. Again, while our data show most financial advice firms have made some change to practices and processes, rather than undertaking an overhaul of their proposition, it all adds to the cost of doing business.
This is on top of the growing complexity of day-to-day advice. Advisers with ‘at retirement’ clients will often be helping them navigate continued working, disparate pots of capital, and more ambitious retirement projects. This requires greater creativity and flexibility on the part of advisers. Yet advisers ability to charge more for their advice may be constrained, particularly if clients are eating into their capital to fund retirement income.
Potential solutions?
The pressures of the retirement advice review combined with Consumer Duty are not going away. Many advice firms are still in the process of implementing a common and consistent model for delivering retirement advice over the coming year. Of the firms who have implemented a new model in the past 12 months, or who plan to introduce one in the coming year, 41% say they did so directly to meet the FCA’s expectations to have a different advice approach for clients in retirement.
The new rules come with significant data collection and reporting requirements. NextWealth’s ongoing research with financial advice professionals finds that the Consumer Duty has prompted a vast data collection and analysis effort. 67% of respondents to a recent survey2 said their firm made changes to improve the quantity and quality of data their firm holds, as a result of Consumer Duty.
An independent financial adviser said: “I see businesses struggling with that level of data collection. What concerns me is that the requirements keep changing, so we’re almost at a point where you need almost perfect, interrogatable data and most companies don’t have that. It’s a key thing I’m looking for with picking a back-office provider, but you could name any of them and I think they would all struggle.”
There are no perfect solutions, but solutions are emerging. While it may not yet be a game-changer, the advice industry is at the foothills of AI adoption, which may be a means to help with the sheer weight of data and the interrogation of that data. A recent survey by Opinium showed that advisers are warming up to the idea. It found that around two in five IFAs either use or are planning to use AI in the next 12 months, with a majority seeing AI as potentially helpful for managing low value clients as well as creating efficiencies in working practices3.
In the meantime, pressures remain and the demand for advice will continue to outstrip supply. While the regulator continues to push operational change on advice firms, and client needs become more complex, it is unclear whether supply side challenges can be resolved.
