Financial advice firms in the UK remained resilient throughout 2022 as they continued to experience good levels of new business, with fewer and fewer clients leaving, research by the Lang Cat found.
Yet, their turnover expectations are somewhat less optimistic.
In its fifth State of the Adviser Nation report, the consultancy found that 31% of the 605 businesses polled expect their turnover to be down in 2022, while 27% forecast a similar level to the previous year.
In comparison, just 7% expected a drop in 2021 and 42% in 2020. Interestingly, most firms attributed their attitudes to macroeconomics rather than a client exodus.
Rich Mayor, senior analyst and co-author of the Lang Cat report, said: “Given the harsh conditions we find ourselves in, I’m encouraged that advice businesses continue to be resilient and even smaller firms are adding clients on a regular basis.
“In turbulent markets, more time has been spent reassuring clients of their existing financial plans, and in some instances taking what they see as remedial action if clients have swayed from their paths as a result of markets. We’ve seen a heck of a lot of acquisition activity from consolidators and the largest firms in the UK, and the landscape for this activity remains favourable for those looking to acquire.”
Steven Nelson, Lang Cat insight director and co-author, added: “Although there were a greater number of firms expecting to see turnover drop in 2022, we still heard from many that grew during the calendar year with 42% of firms predicting turnover was on the rise. While broader markets have been tough for businesses, our data suggests advisers remain as resilient as ever.”
Costs
While turnover levels may worry advisers, a majority are increasingly concerned about rising operational costs.
Research by Abrdn found that 85% believe operating costs will grow in the next six months, with nearly 40% worried the rise could threaten their business.
Among the most citied reasons of concern, falling revenue was the most common, either because of client assets decreasing in value (46%) or due to customers withdrawing more from tehri investments (44%).
Jonny Black, strategic director at Abrdn, said: “Advisers are being hit from two sides. Like businesses across the economy, firms are battling cost increases in everything from labour to energy. Meanwhile, as a lot of adviser charges are percentage based, they are seeing reduced fees because revenue has been hampered by recent market performance and because clients have adjusted their investment levels in the cost-of-living crisis. It’s costs up and revenue down for a lot of advisers.
“Firms must walk a fine line when managing these pressures. There is only so much they can do to reduce operational costs without affecting service levels and their operational effectiveness. Management teams will also be wary of turning to increased fees.”
As a result, nearly half of firms (44%) plan to make changes to dampen the impact of increasing overhead costs, and nearly a third (29%) will relocate their offices – rising to 43% for networked businesses. Another 28% intend to invest in new platform technology, while 26% will increase fees.
Black added: “It’s welcome that so many businesses are already turning to platform solutions to help them navigate the period ahead. Platform technology – and the expertise and resources of platform providers – has a central role to play in helping firms unlock all-important operational efficiencies by helping businesses manage workloads faster.
“Firms are facing stiff operational headwinds. But this year will bring new opportunities for growth. Ensuring the right technology and partnerships are in place will help put them in the strongest possible position to capitalise on whatever arises, and mean they can continue to provide the quality of service that their clients so value.”
