The FCA’s latest Dear CEO letter landed last week and sent a shot across consolidators’ bows. But it was the part where the regulator yet again raises the issue of ongoing advice that caught our attention.
The FCA has repeatedly expressed concerns that advisers default to providing ongoing advice. One-off, task-based advice is harder for firms to commercialise, and is therefore in shorter supply. However, the regulator is clearly sceptical that everyone who gets ongoing advice truly needs it.
But how many clients would be willing to pay high enough fees to cover the cost of starting and then restarting the relationship with the client every few years? We know plenty of advisers who are prepared to work like this for at least some clients, but most want ongoing relationships, which are more satisfying – intellectually, emotionally and above all commercially.
There is under-supply of advice in the UK. Demand is strong, but only a small fraction of the population receives advice. Our recent UK Financial Advisers: Market Overview illustrates that we are likely to reach capacity in a few years, partly because the whole system is geared to delivering ongoing services for ongoing fees.
Catering for one-off or sporadic advice would prompt a seismic shift in the sector. Adviser platforms would need to provide some means for investors to self-serve. Vertically integrated firms may find opportunities to mix ongoing portfolio management with one-off advice. Might such a shift also encourage more firms to bring portfolio management in-house, reversing the decade-long trend towards outsourcing?
There are challenges, but the opportunity is huge, if not necessarily for the current breed of advisers. There are 55m million adults in the UK, 93% of them aren’t receiving ongoing advice.
We recently published UK Financial Advisers: Market Overview report. For more information, please get in touch.