Artificial intelligence (AI) continues to dominate the headlines and this is no different for the financial advice world.
The 2023 Schroders UK Financial Adviser Pulse Survey, which sampled 180 UK financial advisers, found disruption is expected to remain a major theme in markets. The percentage of advisers expecting higher disruption related to technological advances has risen from 30% to 45%.
This jump in advisers expecting disruption from technological advances could be a reflection of the huge focus recently on developments in AI.
When the survey dug deeper into views on the topic it found a split in opinion with 57% of advisers thinking the development of AI technology applications such as ChatGPT represented a potential opportunity for their business, while 43% saw it as a potential threat.
Despite this, it is worth noting that 73% of advisers anticipate incorporating AI based technology applications in their advice process in some way in the future, indicating that the potential of these advancements are clearly being recognised in spite of any apprehension.
Cost-of-living crisis
The survey also revealed the scale of conversations taking place between advisers and their clients on merits of cash versus long-term equity investing amidst growing cost of living concerns, with up to 90% of advisers surveyed reporting this.
Some 89% of advisers have some clients who adjusted their plans as a result of the cost-of-living crisis, an increase from 53% in November 2022. Up to 60% of advisers’ clients citing higher household expenses as a reason for clients changing their plans, and 44% citing having to help wider family as a reason.
Two-thirds (66%) of advisers surveyed also reported that a quarter of their clients have already adjusted their plans.
Capital loss remains the top ranking concern among clients although this had reduced since November 2022, while concerns around inflation saw a significant increase.
The survey did, however, also find that advisers’ clients remain least concerned about rising interest rates. This may be because many advisers’ clients are at the stage of life when many will have paid off their mortgage.
The challenging market background may have contributed to the fact that despite some progress in the last six months in equity markets, 44% of advisers reported that sentiment among their clients remains bearish, although this has dropped from 68% since November 2022.
Interestingly, an equal 44% of advisers also stated that their clients are neutral, a swing from 26% in the last survey. This, perhaps, is an indication of the influence of recent volatility over the last few years as more clients become wary of predicting the future.
Investment choices
The Schroders survey also identified that advisers are continuing to favour high quality active management in multi-asset.
The majority (86%) would recommend a fully active multi-asset fund with a robust, proven investment process with equivalent charges to a passive multi-asset fund over a passive multi-asset fund.
An area rising in popularity and interest is private assets.
In 2023, Schroders launched the first Long Term Asset Fund (LTAF) in the UK market which will give investors more access to private markets and support future productive finance initiatives including the transition to a low carbon economy.
Some 21% considering using private market investments with their clients, an increase from 12% in May 2022.
Consumer Duty
The rapidly approaching Financial Conduct Authority’s (FCA) Consumer Duty will come into effect on 31 July 2023.
The Adviser Pulse Survey found only 4% have not yet started to prepare but encouragingly, 19% of advisers are fully prepared.
The remaining 77% stated that their preparations are in progress and that they should be ready for the end of July.
Only 25% of advisers thought that the Consumer Duty would have an above medium impact on their business.
It was also reported that of the four consumer outcomes, assessing and describing fair value was the most difficult to prepare for and 59% of the advisers surveyed felt that this outcome would put pressure on the ongoing charging model.
‘Fascinating snapshot’
Doug Abbott, head of UK intermediary at Schroders, said: “The Schroders Pulse Survey as ever has provided a fascinating snapshot into the current challenges facing advisers, in particular how the wider macroeconomic situation is affecting client behaviour.”
Gillian Hepburn, intermediary solutions director, Schroders, added: “This year’s results have identified some key developments and insights that show the direction of travel for the advice industry. The rise of AI as a topic is continuing to accelerate and with 51% of advisers expecting it to be incorporated into their process within the next five years it will be fascinating to see how the industry will embrace and benefit from new technology.
“Consumer duty also continues to be front of mind with advisers. Although the majority of advisers report they will be prepared by the end of July, it is surprising to learn that 77% thought it would only have e medium to low impact on their business. We look forward to exploring this topic further in our next survey in November.
“What is clear from the results are the ongoing concerns held by clients due to the turbulent economic and geopolitical situation of the last year and the impact that is having on markets and potential capital loss. Advisers can therefore demonstrate their value by having a crucial role to play by offering good quality advice, keeping clients invested and giving them the best chance of achieving their long-term objectives.”
