Table of Contents

1. EXECUTIVE SUMMARY

• 1.1. A buoyant UK IFA market carries a heavy regulatory burden
• 1.2. Key findings
• 1.3. Critical success factors

2. THE UK FINANCIAL ADVISOR MARKET IS BUOYANT

• 2.1. The number of financial advisor firms and advisors is increasing
  • 2.1.1. There were 26,311 financial advisor firms at the end of 2017
  • 2.1.2. The majority of financial advisor firms are independent
  • 2.1.3. Average revenues from retail investments are on the up
• 2.2. Financial advisors are the leading channel in the sale of pensions and investment products
  • 2.2.1. Financial advisors accounted for 58% of pensions and retail investment product sales in the first half of 2018
  • 2.2.2. Outside of pension investments, investors tend to arrange investments directly or via a financial advisor
  • 2.2.3. The expertise of financial advisors is the key draw for investors
• 2.3. Mass affluent individuals are the mainstay of the advice market, with retirement a key prompt for seeking advice
  • 2.3.1. Retirement is a key driver for seeking advice

3. REGULATION IS CONSIDERED THE GREATEST THREAT AND AN AGING POPULATION THE BIGGEST OPPORTUNITY

• 3.1. Threats: compliance is the chief concern for advisors, while competition from robo-advisors causes little worry
  • 3.1.1. Brexit, industry consolidation, and the tax treatment of pensions are also considered key threats
  • 3.1.2. Advisors are less concerned about the competition posed by robo-advisors
• 3.2. Brexit is the most imminent threat and will bring increased volatility
  • 3.2.1. Client communication will be key in guiding clients through volatility
  • 3.2.2. Advisors servicing British expats in Continental Europe face particular challenges
• 3.3. The regulatory burden for financial advisors shows no signs of diminishing and is particularly hard on sole advisors
  • 3.3.1. 2018 was a big year for new regulation, with more set for 2019
  • 3.3.2. MiFID II brought in numerous changes for advisors, and the impact continues into 2019
  • 3.3.3. The impact of MiFID II on clients so far has been limited, but may change as the first cost and charges disclosures are released
  • 3.3.4. The regulatory burden is of particular concern to single IFAs
• 3.4. Industry consolidation: perceived as both a threat and an opportunity
  • 3.4.1. Industry consolidation continues apace
  • 3.4.2. 8.4% of advisors are considering exiting the profession, providing a steady pipeline for acquirers
  • 3.4.3. Retirement is the number one driver for exits, but regulation is also a notable factor
• 3.5. Fears over pension tax relief cuts have yet to be realised, but linger on
  • 3.5.1. The October 2018 budget did not make the much-feared raid on pension tax relief
• 3.6. Opportunities: the UK’s aging population represents the greatest opportunity
  • 3.6.1. Changes to pension laws, DB to DC transfers, and social care funding are also considered notable opportunities
• 3.7. The UK’s aging population provides a growing customer base for financial advisors
  • 3.7.1. By 2041 there will be almost 4 million additional adults of pensionable age
  • 3.7.2. The aging population will have not only retirement planning requirements but also social care funding needs
• 3.8. DB to DC transfers are an opportunity, but are not without risk
  • 3.8.1. The value of DB to DC transfers is growing
  • 3.8.2. More advisors are obtaining permission to advise on DB to DC transfers
  • 3.8.3. However, the FCA is putting advisors under increasing scrutiny and professional indemnity premiums are rising due to mis-selling fears

4. TO TARGET FINANCIAL ADVISORS EFFECTIVELY, PROVIDERS MUST CONSIDER COST, REGULATION, AND CARE FOR END CLIENTS

• 4.1. There is limited scope for providers to encourage advisors to become restricted
  • 4.1.1. Restricted advisors accounted for 11% of the market at the end of 2017
  • 4.1.2. Just 3% of current IFAs are considering switching to restricted status
  • 4.1.3. For independent advisors considering switching, the opportunity to spend more time with clients is key
• 4.2. Service provision: platform usage is embedded, but competition is robust
  • 4.2.1. 91% of advisors use an investment platform
  • 4.2.2. Cost is the key consideration for advisors when selecting a platform, but product range also comes into play
  • 4.2.3. Advisors review providers annually, and 7.5% are considering switching provider
• 4.3. Service provision: demand for investment management outsourcing is solid, but reservations remain
  • 4.3.1. 39.1% of financial advisors outsource investment management to a DFM
  • 4.3.2. The ability to focus on planning and client relationships are the greatest draws to outsourcing, while cost is the biggest barrier
  • 4.3.3. A good investment track record is the top requirement of advisors looking to outsource

5. APPENDIX

• 5.1. Abbreviations and acronyms
• 5.2. Definitions
  • 5.2.1. Article 3 exempt firms from MiFID
  • 5.2.2. DB pension
  • 5.2.3. DC pension
  • 5.2.4. Emerging affluent
  • 5.2.5. HNW
  • 5.2.6. IFA
  • 5.2.7. Liquid assets
  • 5.2.8. Mass affluent
  • 5.2.9. Mass market
  • 5.2.10. OADR
  • 5.2.11. Restricted advisor
  • 5.2.12. SPA
• 5.3. Methodology
  • 5.3.1. GlobalData’s 2018 IFA Survey
  • 5.3.2. GlobalData’s 2018 UK Investor Survey
• 5.4. Secondary sources

Engaging with UK Financial Advisors: Trends, Concerns, and Opportunities

Summary

The UK financial advisor market is in strong shape. Typically considered a shrinking market, the number of advisors and advice firms are increasing, while average revenues are also on the up. And investor demand for advice remains strong, particularly for those approaching or in retirement. With the opportunities afforded by the 2015 pension freedoms and an aging population in need of retirement advice, growth prospects are strong for financial advisors. But there is a heavy and growing regulatory burden, which is a notable driver for those exiting the profession and the resulting high level of acquisition activity. Regulation is pushing remaining advisors to rethink their business models - whether that involves switching to restricted status, using independent financial advisor (IFA) support services, or even restructuring propositions and outsourcing investment management. This is all set against the rise of automated investment services, which is currently low on the list of advisor priorities but which the Financial Conduct Authority looks set to put firmly on the agenda in 2019.

This report is a comprehensive analysis of the UK financial advice market, with a focus on key issues affecting IFAs and their businesses. The report draws from our 2018 IFA Survey and our 2018 UK Investor Survey.

Specifically the report -
- Provides an overview of the UK IFA competitive landscape, analyzing advisor numbers, business models, and industry consolidation trends.
- Examines key demographics accessing financial advice and the reasons behind them doing so.
- Identifies the threats and opportunities for IFAs trying to expand their business.
- Analyzes the impact of Brexit and MiFID II on the UK financial advice industry.
- Examines factors influencing IFAs’ choice between independent and restricted models.
- Offers insight into how product providers, including platforms and DFMs, can engage with the IFA industry.

Scope

- Overview of the UK IFA competitive landscape, analyzing advisor numbers, business models, and industry consolidation trends.
- Key demographics accessing financial advice and the reasons behind them doing so.
- Threats and Opportunities for IFAs trying to expand their business.
- Impact of Brexit and MiFID II on the UK financial advice industry.
- Factors influencing IFAs’ choice between independent and restricted models.
- Insight into how product providers, including platforms and DFMs, can engage with the IFA industry.

Reasons to buy

- Understand which segments of the UK investment market offer the highest growth potential.
- Identify the main pain points of IFAs to engage with them effectively.
- Discover what is driving consolidation in the UK IFA market in order to understand how you can benefit from the trend.
- Learn how IFAs choose their partners and product providers to increase your penetration in the market.