What are the key challenges for financial advisers? The Schroders Annual Adviser Survey has always provided insights and with over 400 advisers taking part last November, the most recent survey was no exception as we head into 2023.
The top ranked challenges identified by advisers were:
- Servicing existing clients
- Succession planning and exit strategies
Maybe no surprises here, but what are the reasons?
The survey was conducted in late October/early November and likely that ‘Consumer Duty' was front of mind. Draft plans were due for submission to boards (or equivalent) by the end of October.
Somewhat worryingly, 6% of advisers said they had not yet started to plan for the impending regulation and while 18% said they were fully prepared, 82% had more to do.
It's worth remembering that Consumer Duty is not a ‘one and done' exercise. Perhaps simply documenting the areas to review regularly provides evidence that ongoing checks will be undertaken to ensure compliance with the four customer outcomes?
The survey also identified that the number of advisers segmenting their client base had dropped to 58%. This was a surprise as some form of segmentation is likely to be necessary to support the ‘Products and services' client outcome. This is to ensure that the range of clients and services delivered to each client group is appropriate and evidenced. Would it be usual for an adviser to only have one segment?
Servicing existing clients
2022 was another volatile market for client investments. Many portfolios had recovered from the Covid-related market downturns and then faced challenges due to the Russia/Ukraine war and the cost of living crisis.
Advisers cited capital protection as the number one concern for their clients. This is unsurprising, given the typical age of advised clients. For many nearing or post retirement, conversations will be focused on preservation of the pension pot and other assets to be used for future income. 53% of advisers also reported that some clients have had to adjust their investment plans as a result of the cost of living crisis. Managing income requirements is likely to be a key factor here. As the winter fuel bills start to bite and the cost of Christmas takes its toll, we would expect this number to increase.
There is also a significant link to Consumer Duty and the client outcome of ‘Price and Value'. It's important that advisers can articulate the benefit of these ongoing conversations with their clients and the value of navigating them through stormy market conditions. Perhaps this is why in 2022 we saw a further increase in advisers outsourcing their investment proposition. 20% of advisers taking part in the survey indicated that they had increased their level of outsourcing in 2022. The key reasons for this were ‘access to investment expertise' and ‘effective management of volatility'. Choosing a provider who can support great quality clients conversations through the provision of timely, relevant and clear client-facing communication is important - and the provider should also be easily accessible for any questions.
Succession planning and exit strategies
Media headlines in 2022 were full of M&A activity and the pace of this shows no sign of slowing down. From major acquisitions to the continual announcements from the consolidators, it's easy to lose track of ‘who owns who?'
Many advisers we speak to are still looking for an exit in the next five to ten years and therefore focusing on preparing to sell. Our colleagues at Benchmark are always happy to have conversations about the options available on exit strategies as it's not a ‘one size fits all'. Starting early is every bit as important for advisers looking to sell their business as it is for clients building up a pension.
Their top five tips are:
- Be open minded about the range of options available and evaluate the impact of each of these both for you and for your business, clients and staff.
- Do your due diligence carefully, and make sure you have the right legal representation.
- Cultural alignment is important, and is often the key to a successful sale. Make sure your business is well run and documented, and that it's efficient through good systems and processes.
- Lack of customer disruption is paramount, so think carefully about how and when the change is communicated.
- Finally, it's never too early to think about succession planning and securing your own retirement plan.
If you would like to access the full survey, click here.
This post is funded by Schroders