It’s official: more money was taken out of advised platforms in 2023 than in any other year.
According to The Lang Cat’s ‘State of the Advice Nation’ report, outflows last year hit £53.18bn — an increase of over a third on 2022’s total of £39.01bn.
In the fourth quarter of 2023 alone, outflows stood at almost £15bn.
Most of these withdrawals were from Isas and pensions, which “took a hammering” throughout the year, the report says.
The primary reason investors gave for withdrawing assets was to support themselves and family members with the increase in household expenses due to the cost-of-living crisis. This was followed by concerns over capital preservation in volatile markets.
Another monster in the shadows is threatening the future of platforms
Rising inflation and higher interest rates on cash savings created a “perfect storm for advised platforms” last year, according to The Lang Cat. The consultancy also noted a shift in advisers’ retirement income strategies, with an increase in the use of annuities for more risk-averse clients.
So, is there reason to believe that 2024 will be any better for platforms? Although inflation is back ‘under control’ at 4% compared to the dizzy heights of 11.1% in November 2022, it is double the government’s target of 2%.
With tensions in the Middle East far from easing, the war in Ukraine raging on and more than 60 elections worldwide this year — including in the UK and the US — a number of factors could cause inflation to rise again.
From both a political and an economic point of view, 2024 is likely to be just as unstable as 2023, and nobody can say with any certainty what will happen or what impact it will have.
PE-backed consolidators
Even if things do settle this year, which is hard to envisage, another monster in the shadows threatens the future of platforms: the private equity (PE)-backed consolidator. There has been a big rise in the number of UK advice firms supported by PE or private capital, with the figure now believed to stand at 35.
Many consolidators may be nervous about meeting the Consumer Duty’s fair-value guidelines
The likes of Evelyn Partners, Fairstone, Progeny, Radiant and True Potential have been on an acquisition drive, snapping up dozens of IFAs over the past 24 months or so.
The ever-increasing regulatory burden — and the cost of implementing the changes — could see more small and medium-sized advice firms deciding that enough is enough and exiting the market, so there’s every reason to think this trend could continue.
Many people from across the sector to whom I’ve spoken believe that, in the not-too-distant future, the UK advice market will be in the hands of several larger, PE-backed groups.
However, after a flurry of acquisitions in 2023, there are signs that the trend of PE-backed consolidators buying up smaller advice firms is starting to slow. It could be that, with only a small pool of IFAs left, there simply aren’t many firms of interest on which to bid.
From both a political and an economic point of view, 2024 is likely to be just as unstable as 2023
Also, many consolidators may be nervous about meeting the Consumer Duty’s fair-value guidelines and will therefore concentrate on integrating the firms they have already acquired as opposed to going in search of more.
Some of these firms are also creating their own white-label platform, which could see big players such as AJ Bell and Quilter lose assets.
In fact, just last year Quilter chief executive Steven Levin told analysts that sponsor-backed consolidation was becoming an “increasingly disruptive force”.
This has had two implications for the firm, Levin said. First, where IFAs that use Quilter’s platform have been acquired, this can lead to outflows as they consolidate their business elsewhere. Second, Quilter has lost some of its own advisers to consolidators.
There are signs that the trend of PE-backed consolidators buying up smaller advice firms is starting to slow
The Lang Cat’s senior analyst, Rich Mayor, believes that 2024 will be the year when platforms “return to normal”.
However, he warns that “the journey will be slow and recovery fragile”.
Just how long will that journey take? How many months, or even years, could it be before platform ‘normality’ resumes?
And what will normality even look like?
Dan Cooper is news editor. Contact him at: dan.cooper@moneymarketing.co.uk
This article featured in the March 2024 edition of MM.
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