To close the advice gap and offer more people financial advice, writes Nick Eatock, there either needs to be more advisers or advisers need to be able to deliver advice to more people. In this article the Intelliflo CEO looks at the statistics in a bid to show why technology could be a solution...
I'm a passionate believer in the value of advice, but in the UK the issue of the advice gap is well documented. A study into the advice gap by OpenMoney last year highlighted that fewer than 10% of people had taken regulated financial advice in the previous two years, while BlackRock's Investor Pulse research for the UK found that less than 15% of us use a financial adviser.
The impact of the coronavirus crisis on household finances is likely to mean that more people than ever would benefit from access to a financial adviser
To bridge the advice gap and widen access to advice, we either need more advisers, or advisers need to deliver advice to more people. According to the FCA's latest intermediary market data, which covers the full year 2018, the number of financial advisers isn't increasing at pace.
Staff advising on retail investment products rose by just 1% on 2017 and 4% on 2016. It will be interesting to see what the 2019 figures show, but while attracting more advisers into the industry is a sensible goal, it is clearly a longer-term objective. Scaling existing advice businesses would seem to be a more immediate answer to the issue of the advice gap.
Yet it's not always easy to grow a business profitably. The FCA's intermediary market data shows that, on aggregate, the larger the firm the less money it makes as a percentage of regulated revenue.
While sole traders made 43% profit as a percentage of revenue, that fell to 35% for firms with two to five advisers and 19% for firms with between six and 50 advisers. Firms with over 50 advisers actually made a loss on aggregate - although the FCA does point out the segment was impacted by significant losses reported by a few firms.
This seems counter-intuitive given that larger firms are able to spread the costs of regulation, PII premiums and business investment across a larger number of advisers.
The other problem is that advised clients are typically wealthy, which works well with most advisers' percentage fee charging model. Broadening out advice to a wider group of people undoubtedly means they have smaller amounts to invest and therefore will generate lower fees for the adviser.
So how can advice firms meet the growing need for advice across a wide range of clients, build scale and remain profitable? I believe that technology is the answer by helping improve efficiency while reducing costs.
Of course, as the CEO of a technology firm, you'd expect me to say that, but the data really does support the view that the right technology can be instrumental in scaling your business safely. Two years ago, Intelliflo released its first eAdviser Index looking at how adviser firms were using our software.
We found that the clients who use our technology most across the board have 90% more ongoing revenue, 78% higher revenue as whole, 92% more clients and 97% more AUA than those who use it the least. Making the best use of the right technology can make a measurable difference to the success of your firm.
As I said in last month's article, Covid-19 has accelerated the adoption of technology and we've seen huge increases in client logins and co-browsing and video engagement with clients. But during the crisis, we've also seen use of our core technology increase by just over 20% since before March.
What is interesting is that many firms are using capabilities that they never even touched before the pandemic. And firms believe it is improving how they work, with a recent Intelliflo survey of advisers finding that 59% expect that increased adoption of technology will lead to greater efficiency.
Lockdown has provided an unexpected stimulus to business use of technology, but hopefully it will create efficiency gains that allow firms to start bridging the advice gap at a time when wider access to advice is most important.
Nick Eatock is CEO of Intelliflo
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