Last week we published research for Fidelity FundsNetwork on the top business challenges facing advisers and the findings gave us pause to think about the increasing complexity of running a financial advice business. Will all of this complexity lead to further consolidation?
Foster Denovo last week announced bold plans to ‘facilitate’ acquisitions (they really don’t want the consolidator badge!). Something that David Wilkinson (senior partner at Foster Denovo) said in an interview with New Model Adviser caught my eye: ‘We decided about 12 to 18 months ago the infrastructure is too big for the size of the business we are, so we made an active decision to grow.’
The cost of running a financial advice business is increasing. These challenges are real and pressing.
The research we did for FundsNetwork underscores the scale of the challenge for advisers. 80% of advisers say that compliance and regulatory change are among their most pressing business concerns. Half say it is their number-one business challenge.
Next on the list of difficulties are back-office administration, business efficiency, and business management (including hiring and training new staff).
The findings are based on a survey of 206 financial advisers, with a good representation from advisers at larger firms.
At a breakfast briefing hosted by FundsNetwork last week to share the findings, Duncan Ross of Saunderson House revealed that his firm has doubled investment over the past few years on compliance activities, including increasing headcount.
When it comes to business efficiency and administration, advisers we spoke to said that to be successful they need to run efficient businesses. Many believe that this will change the shape and structure of the adviser market, making it harder for small firms to survive. Large firms have introduced a layer of expertise, with dedicated project managers, IT experts, etc.
But while we hear about Foster Denovo and others looking to buy up advice businesses (not to mention Schroders-Lloyds JV that will look to triple adviser numbers in the next few years), the reality on the ground is that the financial advice profession is dominated by SMEs. Are we seeing consolidation or not?
In June of last year, NextWealth analysis of FCA data showed that 89% of firms have 5 advisers or fewer – the same percentage as the previous year. And PIMFA’s Financial Adviser Market in Numbers report suggests that consolidation was more myth than reality in 2017 (their latest data show a 3% increase in the number of advisers and only a 4% decrease in the number of firms).
But consolidation is picking up pace and the pace will continue to quicken as Foster Denovo, Lloyds and others join the ranks of firms with deep pockets looking to grow their ranks of financial advisers. In our Shape of Flows report published in December, we noted that AFH, the most active consolidator, acquired 17 adviser businesses in 2018 (as at 13 November 2018).
The conclusion from our research for Fidelity FundsNetwork is that in many ways it has never been a better time to be a financial adviser. Demand for professional financial advice is high and on the rise. But that is not to say financial advisers aren’t under immense strain.
Some advisers will decide to work with bigger firms to share the cost of administration, compliance and technology. Will that be enough to change the shape of the market?
We’ll be debating this and more at our NextWealth Live conference on 26 March at the Royal Institution in London. We have a few spaces left. You can register by emailing us
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