The platform sector is a diverse and fragmented industry in need of unification and greater collaboration.

In the past, many attempts have been made — unsuccessfully — to bring providers together under an umbrella group. The setbacks have always been attributed to the competing interests of platforms and, until now, there has been no formal trade group to represent the community.

The sector’s views have instead been represented by various organisations, including the Association of British Insurers (ABI), the UK Platform Group (UKPG) and The Investing and Saving Alliance (TISA).

However, all that is about to change with the formation of the Platforms Association.

People have been asking, ‘Why wasn’t this done five years ago?’

The association, which was launched in late September on the eve of the Schroders UK Platform Awards, wants to be the representative voice of the multibillion-pound platform sector.

It claims the industry has “lacked specific sectoral representation and co-ordination” and “needs to take greater control over influencing regulatory issues and shaping growth”.

The trade body will act as a conduit for the sector to engage with regulators and policymakers, as well as co-ordinate and promote industry interests. Several leading platforms, including Abrdn, Aegon, Fidelity, Quilter, Seccl and SS&C, have already signed up.

The Platforms Association will be chaired by David Moffat, a senior director at SS&C who has decades of platform experience, and headed by industry veteran Keith Phillips, a former executive director at TheCityUK, the British Bankers’ Association and the Investment Association.

The pair will be supported by a board made up of leading industry experts.

Organisational structure

Membership of the association is open to UK- and Europe-regulated platforms whose primary activities are the settlement, custody and safekeeping of retail investor assets, as well as sub-custodian firms and white-label technology providers.

There are also affiliate members drawn from platform consultancies, legal firms and software providers. In addition, related financial and professional services firms, including Alpha FMC, have been appointed as independent strategic partners.

The platforms obviously felt they didn’t have a trade body that properly represented their interests and needs

“Given a background of increased economic uncertainty and regulatory scrutiny, the UK platform industry now needs its own dedicated forum and representative voice,” says Moffat.

“The Platforms Association will look to co-ordinate collective action and agree best practice to the benefit of platform operators, financial advisers and underlying investors.”

Phillips agrees.

“The investment and fund industry has been transformed and democratised over the past decade, with millions of customers now interacting directly with their financial futures through a platform.”

As a result, he adds, “sector-wide co-ordination should now be fully realised for the benefit of all”.

The association has already developed a roadmap of priority issues to be tackled, including platform requirements, regulatory expectations, and operational efficiencies and improvements.

Having a body specifically for platforms will encourage a better understanding of the issues

These three broad areas will be overseen by a leadership council comprising representatives from across the industry. This will meet quarterly and set the strategic agenda for the association.

Membership of the council, chaired by platform veteran Peter Mann, will be by invitation only.

‘Hard prioritisation’

Moffat says the association has already managed to collate a long list of 30 platform issues that the council needs to deliberate on.

The list was collated following consultations with the Financial Conduct Authority, the Investment Association, the Personal Investment Management and Financial Advice Association (Pimfa), TISA and other stakeholders.

“We have probably a capacity to cope with half a dozen [issues] at most and there’s some hard prioritisation going on,” says Moffat. “We need the leadership council to give us the steer as to what areas to focus on.

I’m not sure how dividing representation into two groups is helpful

“There’s a whole slew of other areas that potentially would justify, warrant and command our attention. But we’re going to have to cut our cloth accordingly,” he adds.

The association will also have standing committees to cover legal, regulatory, operations and technology issues.

Moffat states that the association, which is a not-for-profit, is working closely with some of the leading financial services trade bodies, such as the ABI, Pimfa and TISA.

“We have talked a little about ‘Trade Body 2.0’ as a kind of model, rather than simply emulating some of the existing major players.”

He says the association is different from others because all its members, regardless of size and assets, will participate and contribute “on an equal footing”. The cost of membership is £10,000.

Moffat continues: “I think that’s important, not so much for the amount but at the level that everybody is there equally.

“Part of the problem you tend to see with the pricing models that some of the other trade bodies adopt is that the biggest players contribute by far the largest amount of the money.

We hope this new forum can find common ground that enables progress

“The problem, of course, is that those very big players dominate and almost dictate the agenda that the trade body follows. And that’s what we’ve been keen to avoid.

“We want everybody sat around the table to contribute, and their value lies in the quality of their arguments and their analysis, rather than the amount of money they paid to be sat at that table.”

Warm welcome

The sector has largely welcomed the newly formed platform trade body and the response from across the industry has been “genuinely quite flattering”, says Moffat.

“The one question that people have been asking is, ‘Why wasn’t this done five years ago?’

“There is no good answer to that right now other than the fact that it wasn’t. Let’s do it now, then, and get it right.”

Platforum head Jeremy Fawcett thinks investment platforms should argue their corner with the regulator, the government and other parts of the industry.

In five years’ time, I’d like to see a platform community that is competitive and providing innovation and change at the individual platform level

It’s “surprising that it has taken so long to get here”, he says of the new trade body.

Fawcett adds: “Transact has been around for 25 years and collectively platforms hold a serious amount of the population’s wealth — about £800bn, according to our data.

“As a large and distinct part of the personal investing landscape, they find themselves in the regulator’s crosshairs and often need to respond in a co-ordinated way.

“Asset managers and wealth managers have their own well-established associations to represent them and don’t just rely on the broader industry groups. Investment platforms are sensible to do the same.

“The platforms obviously felt that they didn’t have a trade body that properly represented their interests and needs, and spoke with a single, clear voice to the government, the regulator and the rest of the industry.

“TISA was never likely to do the job, given the wide range of members — from asset managers to large intermediaries — and the potential for conflict between them, although it remains a very useful forum.”

The challenge in platform trade bodies has been the fact there are some business models that significantly compete with each other

Söderberg & Partners Wealth Management UK CEO Nick Raine adds: “While not a silver bullet, we think having a trade body specifically for platforms will encourage a better understanding of the issues platforms face.

“This will be a step forward from simply addressing the symptoms, which has often been the problem in the past.

“Platforms can improve transparency for end-clients and help advice firms fulfil their Consumer Duty obligations. With the additional support and advocacy of a trade body, we predict a bright future for platforms.”

Benchmark Capital chief executive Ed Dymott says: “We are always interested by improving industry collaboration, driving best practice and ensuring regulatory policy is appropriate.

“There is a lot of focus on platform business models, and we see benefits if there is more consensus in how the industry addresses key challenges.”

Divided loyalties

However, not everyone agrees with the formation of a new platform industry body.

Parmenion chief executive Martin Jennings believes the UKPG represents the platform sector. He wants to see the group strengthen itself rather than have to compete with a rival trade body.

We’ve seen trade bodies that have tried to become quasi regulators; that doesn’t work out well for anybody

“We have currently decided not to join the Platforms Association and to continue to strengthen our representation through the UKPG,” he says.

“I’d welcome anyone who wants to represent the industry or represent the interests of the industry and the clients within it. However, I’m not sure how dividing representation into two groups is helpful.

“I’ve a concern that we’ll end up diluting the voice because the UK platform people will represent themselves either through the Platforms Association or through the UKPG. And, when I look at
that, one group is surely better than two.”

Jennings hastens to add that his platform firm is not ruling out joining the Platforms Association in the future “if its voice becomes much stronger than the UKPG’s over time”.

The UKPG was set up in 2014 to represent retail platform operators. However, the group is limited to a small number of members in the UK. It does not have a formal legal structure or secretariat.

They’re just drowning in stuff, trying to make some kind of coherence out of the whole thing

A UKPG spokesperson says the group remains active and continues “to deliver in line with the principles that govern it”, dismissing any suggestion of rivalry between the two trade bodies.

“The UK Platform Group is aware of the Platforms Association,” adds the spokesperson. “The UKPG, with Pimfa as secretariat, will continue to represent the views of its members and looks forward to working alongside the Platforms Association to improve the understanding of the industry and advocate for positive change.”

Definition debate

“‘Platform’ is a label in search of a definition,” the late Ian Taylor, a former CEO at Transact, once said. Decades after Taylor’s assertion, the platform sector still can’t agree on one definition.

I put the question to the UKPG.

It replied: “It is not the role of the UKPG to define what is and what is not a platform. The UKPG has clear criteria for membership in its terms of reference, which are available on request to prospective firms who may wish to join.”

Meanwhile, the Platforms Association’s founders say they too struggled to come up with a definition.

“What is and what isn’t a platform has been a bedevilment all through the period. In the mid-2000s, this was a recurring theme on all the conference circuits,” says Moffat. “What we always agreed whenever we got bored was, ‘If it walks, swims and quacks like a duck, it’s probably a duck.’”

We have currently decided not to join the Platforms Association and to continue to strengthen our representation through the UKPG

However, the association has opted for a broad definition of ‘platform’, he adds.

“The answer is: anybody who’s got a name above the door operating a kind of investment online solution. Most people know what a platform is when they look at it.”

The sector is beset with challenges, from regulation to tech integration. The association will face its stiffest task in getting a consensus on key industry issues.

Dymott says: “The challenge in platform trade bodies has been the fact there are some business models that significantly compete with each other.

“This has always been a limiting factor for the sector in making progress. We hope this new forum can find common ground that enables progress to be made.”

Moffat agrees with Dymott’s assessment, adding that the new association is aware of the challenges ahead because of the “very disparate business models and players sat around the table”.

He continues: “You can’t really do anything in this space without potentially treading on toes.

This will be a step forward from simply addressing the symptoms, which has often been the problem in the past

“I would argue that a trade body, particularly one that’s trying to establish industry best practice and to provide thought leadership, should be treading on a few toes. Otherwise you’re probably not doing your job.

“Ideally you want to do it in a way that doesn’t offend people. We’ve seen trade bodies that have tried to become quasi regulators; that doesn’t work out well for anybody.”

Regulatory scrutiny

Platforms have experienced a sharp rise in regulatory scrutiny since the introduction of the FCA’s Consumer Duty.

The duty, which came into force in July 2023, seeks to set higher standards for consumer protection across the financial services sector.

In September the same year, the regulator sent a Dear CEO letter to platform bosses in which it outlined concerns that fees and charges might not represent fair value.

It said platform fees were “not properly disclosed” and consumers did not have a “clear understanding of what they are being charged”.

A similar letter was also sent last November on the practice of ‘double dipping’ by platforms. This led to issuance of several Section 166 reviews against platforms.

Moffat says: “Part of the challenge for the sector is a regulator that is not entirely comfortable with the behaviour of some of the platform operators. And that was evidenced.”

TISA was never likely to do the job, given the wide range of members

He stresses that the Platforms Association is keen to engage with the FCA in addressing issues that affect the sector, saying that in the past the industry has struggled to get its message across.

“There is no steering group they can talk to,” says Moffat. “The challenge is, they’re having to have a multitude of bilateral discussions and they keep getting told different things and different approaches. And they’re just drowning in stuff, trying to make some kind of coherence out of the whole thing.

“While we probably wouldn’t have [the FCA] at the leadership council every time, there’s a standing invitation if they want to come along and discuss any of their concerns. They will get a very attentive audience.”

Moffat says the Platforms Association will focus on a comprehensive programme of activity to address high-priority industry issues.

“In five years’ time, I’d like to see a platform community that is competitive and providing innovation and change at the individual platform level; which benefits from a coherent world view of what we’re doing and why we’re doing it; and which benefits from a number of common initiatives that strip away either costs or possible errors, or uncertainty as a whole.

Given a background of increased economic uncertainty and regulatory scrutiny, the UK platform industry now needs its own dedicated forum and representative voice

“I’d like us to be far more transparent with management information, and we’d like to have clearer best-practice guidance around what transfers look like.”

Watch this space

When it was launched in September, the Platforms Association was roundly welcomed by a sector yearning for representation.

Those in favour say it was long overdue, while others prefer to wait and see.

Will it succeed where previous initiatives have failed?

This article featured in the November 2024 edition of Money Marketing. 

If you would like to subscribe to the monthly magazine, please click here.

The post Cover story: Trade Body 2.0 – Does the platform sector need a new voice? appeared first on Money Marketing.

“How did you get into financial services?”

“I fell into it.”

This is the most common answer we get when we ask that question. Something needs to change.

There is already a well-documented advice gap. Many people who could benefit from advice lack access, either because of cost or because they simply don’t know it exists.

This will only get worse if the number of financial advisers in the UK drops, as is predicted in the next five years.

If we don’t spark interest in the profession, the numbers will continue to dwindle as advisers leave and aren’t replaced

But why is it that so few people seek a career in the sector?

“Often, it’s just not something that’s on the radar of people at school, university or college,” says Chartered Insurance Institute (CII) career partner manager Claire Bishop.

Historically, workplace programmes were offered to school and university leavers by big accountancy firms and law firms, but advice was rarely flagged as an option. This is still the case.

Bishop also points to misconceptions: “There’s an assumption it’s all about maths. It’s not. It’s about helping people and understanding people.”

Promoting the good

“We don’t promote the good that we do as a sector enough,” adds M&G Wealth managing director Tom Hegarty. “There are countless examples where financial advisers have significantly changed lives. When asked, advisers should have a ready ‘elevator pitch’ that explains their role and its impact.”

Many people who could benefit from advice lack access, either because of cost or because they simply don’t know it exists

If we don’t spark interest in the profession, the numbers will continue to dwindle as advisers leave and aren’t replaced. Everyone in the sector agrees on the need for change.

So, the question is: how do we achieve it?

This feature takes a closer look at some of the initiatives seeking to put the advice profession on the map.

“Despite the significant gap that remains,” says Bishop, one of these pioneers, “I feel optimistic that we will make progress, little by little.”

‘We want to make sure we’re not missing out on talent’

Claire Bishop, Chartered Insurance Institute

The CII launched a new virtual work-experience programme, in partnership with Springpod, in 2023.

The first wave of experiences was focused on the insurance sector. The second wave, which launched in February this year, is for those interested in financial planning.

As part of the programme, thousands of young people aged 13 and above from schools, colleges and universities across the UK can experience working in the sector.

The scheme aims to build an understanding of the skills and characteristics needed to be successful, and help these young people make informed decisions about their future career path.

Getting out to the right audience was always going to be the hardest thing

CII career partner manager Claire Bishop says: “Work experience is great, but very often the type of experience you get is down to who a young person or their family knows. This can limit the types of careers and work experience available to them.

“The idea behind virtual work experience is that it’s a stage before actual work experience. It’s not going to be as valuable as actually working in a place for two weeks, but what it means is that they haven’t got all those limitations.”

The programme aims to give students a taste of a potential career.

“It’s opening up the profession, and careers in the profession, to a lot more people than it would have been otherwise,” says Bishop.

“That was the reasoning behind the programme.”

Equal access

The CII’s partner, Springpod, is a business that specialises in creating interactive, experiential learning programmes to provide young people with equal access to many career options.

“We knew we wanted to do something like this,” says Bishop.

We’re going to start talking to employers to see if they would like to be involved

“However, getting out to the right audience was always going to be the hardest thing because our connections are members, and they’re already in the profession. So, we wanted to work with a partner. Springpod has a very good record, and it is already established in schools.

“We used our contacts and our members to pull together the technical side of the programme, then we handed it over to Springpod to develop it for young people.”

The CII’s initial aim was to reach 1,500 students in the first year and 3,000 over the next four years. So far, 2,500 have enrolled.

It’s opening up the profession, and careers in the profession, to a lot more people than it would have been otherwise

Of those, about 44% are female — just 6 percentage points short of the 50% target. Meanwhile, 66% are from an ethnically diverse background and 22% are eligible for free school meals.

“What we want to do is not just target the same kind of people who usually go into financial services,” says Bishop. “We want to make sure we’re not missing out on talent that would otherwise have never considered us.”

She says the professional body is pleased with the number of sign-ups so far. However, the proof of success will be in the feedback, she adds, which has been “lovely” so far.

“We’re not expecting that there’ll be 3,000 financial advisers at the end of it,” says Bishop. “But we hope to put financial planning on their list of potential careers.”

The idea behind virtual work experience is that it’s a stage before actual work experience

“For next year, we’re looking to take the most engaged of the people who’ve completed the virtual work experience and offer things like careers insight days, where they can go into an office for talks and tours.

“And we’re going to start talking to employers to see if they would like to be involved.”

The CII is also looking at how it can offer students full work experience in the future.

To find out more about virtual work experience, go to springpod.com

‘Younger people see financial advice as stuffy and old-fashioned’

John Somerville, New Talent Alliance

The New Talent Alliance emerged in response to the lack of fresh talent entering the financial advice sector, which is often regarded by younger people as technical, unappealing and dominated by older professionals.

John Somerville — director of financial services at the London Institute of Banking & Finance and one of the forces behind this initiative — is clear about the problem.

It’s not just about attracting young people. It’s about promoting diversity of race and gender

“How many students leave college or university thinking, ‘I want to be a financial adviser’? We need to change perceptions and show that the industry is full of vibrant and passionate people who provide an important social good.”

Small-firm issues

But achieving this is not easy.

“Around 80% of advice firms in the UK are small businesses,” says Somerville. “For them, it’s easier to hire someone with 20 years of experience than to bring in and develop people.”

If we don’t solve the advice gap together, we’ll face serious problems in the coming years

This is partly because it can be too expensive or require too much senior-management time for a small firm to bring on trainees, and partly because “there’s the risk that, after training, a larger firm will poach the new talent”.

Some may also worry that young adults have too little life experience to advise older generations. Somerville rejects this — in his experience, they can be highly successful when given the right coaching.

The New Talent Alliance was developed with Keith Richards — who heads the Consumer Duty Alliance — over the course of 18 months. It has the following priorities: raising awareness of financial advice as a career to attract talent; recruiting and training that talent; and ultimately retaining it within the industry.

A significant part of its mission, says Somerville, is also to change preconceptions.

“It’s not just about attracting young people,” says Somerville. “It’s about promoting diversity of race and gender. If someone looks at [us] and sees only older men in suits, it’s not very appealing.”

Most young people don’t understand their own finances, let alone what a job in financial services entails

Another important factor is helping small firms support new advisers. Many new entrants to the profession leave shortly after qualifying because they have not been given enough opportunities.

Somerville stresses the need for firms to equip these new advisers with tools, marketing resources and opportunities to work with clients, which are often lacking in smaller businesses.

When asked what qualities a young person needs in order to succeed, Somerville suggests shifting the narrative to, “What can the firm do to help this person succeed?” This, he says, is vital in creating an environment where new talent can thrive.

Provision of resources

In terms of how to reach people, the alliance considered directly targeting schools and universities, but decided instead to collaborate with organisations that already had access to these establishments.

The aim, says Somerville, is to equip financial advisers with the resources needed to engage with youngsters about possible careers.

“Financial services has been on the national curriculum since 2014, yet most young people don’t understand their own finances, let alone what a job in financial services entails. The alliance is looking to bridge that gap.”

How many students leave college or university thinking, ‘I want to be a financial adviser’?

It has developed a resource library and is working on videos and podcasts to raise awareness. Although its not-for-profit nature has slowed its growth, it is nearing the launch of a website with tools to support smaller businesses.

“Collaboration is so important,” concludes Somerville. “We’ve got firms that compete with one another, like St James’s Place, Openwork and Quilter, as well as groups such as The Verve Foundation and M&G’s Academy working with us on this.

“If we don’t solve the advice gap together, we’ll face serious problems in the coming years.”

You can follow the New Talent Alliance on LinkedIn.

‘If you don’t look like a stereotypical adviser, you’re less likely to be taken seriously’

Hayley Rabbets, The Verve Foundation

The Verve Group came up with the idea for the We Are Change initiative back in 2021, with the aim of increasing new talent entering the advice profession.

The programme not only gives people the opportunity to study for their diploma and learn about the sector but also supports them in finding a role.

“The main thing we do is actively give chances to those who otherwise wouldn’t get them,” says head of The Verve Foundation Hayley Rabbets.

My dream is to get to a place where we’re no longer needed

“We take away some of the barriers people face and provide a welcoming and supportive environment that people are attracted to.”

The adviser role is difficult to get into without experience, says Rabbets, and “getting that experience in the first place is challenging”.

She adds: “Part of the reason we created a programme to support new talent through their exams was to give people half of what they needed — if they didn’t have experience, at least they had the qualifications.”

Foot in the door

However, even with a diploma it’s hard to get a foot in the door.

“I’ve known incredibly talented people who have worked in the profession for years, diploma qualified, dealing with clients but, as soon as they say they want to be an adviser, they’re turned away,” says Rabbets.

Many people would love a career in finance but they’ve had the door closed on them so many times they’re just about ready to give up

The main reason, in her view, is the time and resources it takes for advice firms, smaller ones in particular, to provide the training.

She says adviser academies are a “brilliant way of getting new advisers going” but, “just as these are the right fit for some, they’re not for others”.

The three aims of the We Are Change programme are to close the advice gap, to increase financial education and to make financial services a more diverse, inclusive place. The latter, says Rabbets, continues to be an issue for those wanting to enter the profession.

“If you don’t look like a stereotypical adviser, or come from a certain background, or if you’re perceived as ‘too young’, you’re less likely to be taken seriously. I like to think things are changing, but there’s still an element of the ‘old school’ hanging around.”

The main thing we do is actively give chances to those who otherwise wouldn’t get them

One way the programme has tried to improve diversity is by taking away all personal information for applicants and focusing solely on their answers to questions.

This, Rabbets says, “is a really great way of removing unconscious bias from the recruitment process”.

There is also a perception that people aren’t interested in a career in finance, or they don’t know about the different roles. However, Rabbets doesn’t believe this.

“There are many people I come across who would love a career in finance but they’ve had the door closed on them so many times they’re just about ready to give up,” she says.

While The Verve Foundation can’t give people experience yet, it can provide a fully funded diploma and access to workshops, as well as its network to help find a role.

Last year, with the support of Royal London and Parmenion, it launched its Adviser Incubator initiative to help those wanting to start their own advice business.

Adviser academies are a brilliant way of getting new advisers going

It is delivering money workshops for the YMCA and prison service, and has launched two women-only cohorts of the We Are Change programme to try to increase the number of women in finance.

Rabbets’ dream is to “get to a place where we’re no longer needed”.

She adds: “It’s a while away but, with support, I’m sure we can do it.”

‘When young people hear about the career benefits, they’re all ears’

Piers Johnson, Future Financial Adviser

Launched in February 2024 after 18 months of meticulous planning, Future Financial Adviser (FFA) was created to address the looming shortage of advisers.

“We’re staring down the barrel at a time when demand for these services is set to rise significantly,” explains Piers Johnson, managing director at Money Marketing and a key figure driving the initiative.

The traditional routes for training new financial advisers — through bank and life companies’ sales forces — have largely disappeared, and attracting new talent has been a persistent challenge for the profession.

But Johnson is optimistic.

“When young people hear about the career benefits, they’re all ears — and rightly so.”

If we don’t solve this capacity crunch together, we all stand to lose

Supported by three of the largest employers in the sector — M&G Wealth, Quilter and St James’s Place — alongside three specialist training firms, FFA aims to educate young people about the diverse roles in financial advice and guide them into the profession.

“This isn’t about self-interest,” Johnson emphasises. “Our partners know they have broader shoulders than many. If we don’t solve this capacity crunch together, we all stand to lose.”

Dispelling myths

One of FFA’s first goals is to dispel the myths surrounding financial advice careers.

Many people mistakenly believe the profession suits only those with strong mathematical or economics backgrounds. Johnson is quick to correct this notion.

“Yes, good numeracy and attention to detail are essential, but you don’t need to be a maths or economics whizz. The most valuable qualities are actually soft skills — listening, communication, patience and empathy.

I’d really like to see a spirit of collaboration fostered by us and others

“Oh, and hard work. You won’t get far without that!”

The potential for self-employment, building your own business and becoming an employer also makes financial advice an appealing career path for many.

Another key aim of FFA is to promote greater diversity within the profession.

“The demographic make-up and distribution of wealth in the UK are very different from what they were in the 1980s,” Johnson points out. “That’s not going to change soon. We need advisers from all walks of life to meet the needs of a more diverse client base.”

FFA is focused on spreading its message far and wide, with Johnson describing it as “a prospect-facing initiative — the shop window for the profession, the flower for the bee”.

We’re staring down the barrel at a time when demand for these services is set to rise significantly

Central to this is creating face-to-face opportunities. FFA is looking to partner with schools and higher-education institutions across the UK, engaging with careers advisers and attending job fairs to showcase the possibilities within the sector.

Raising awareness

One of the biggest challenges young people face is a lack of awareness about the opportunities available to them.

FFA was designed to tackle this by providing guidance on the various career paths and qualifications necessary to succeed in financial advice.

Creating a sense of community is central to this. FFA members can access advice and support from its partners, and plans are under way to establish a mentorship scheme to help young people navigate their early steps in the profession.

We need advisers from all walks of life to meet the needs of a more diverse client base

FFA is also committed to supporting those starting their career, with over 100 entry-level roles listed on its jobs board each month. It is fast becoming the go-to resource for anyone seeking a career in financial advice.

Ultimately, Johnson believes the key to success will be industry-wide collaboration.

“I’d really like to see a spirit of collaboration fostered by us and others. If that happens, I’m confident we’ll achieve our goals.”

FFA, says Johnson, is fully behind this vision.

For more information on Future Financial Adviser, please visit futurefinancialadviser.co.uk

Barney Wallis, 26, is in Ascot Lloyd’s adviser academy

There are barriers for young people joining the advice profession, one of the biggest being a steep learning curve. Firms are aware of the potential cost and risk of new employees, which creates a preference for experienced hires.

The investment needed for inexperienced employees may also explain why starting salaries are relatively low compared to those of other professional careers, which could be another factor leading talent elsewhere.

The programme includes working with skilled trainers, a dedicated mentor and a talented cohort of trainees

I would advocate showcasing the wider advantages of working in financial advice, such as the ability to help clients and their families. This can also be a motivator for getting through tough exams!

But, even if you’re already working in a support role, there are still barriers to becoming an adviser, such as the lack of employed roles and structured development pathways. This is where adviser academies can help.

As someone enrolled in one, I can recommend it as a pathway into the profession. I feel fortunate that the firm I worked for was acquired by Ascot Lloyd, as I had not heard of its academy before.

Firms are aware of the potential cost and risk of new employees, which creates a preference for experienced hires

As a larger firm, it has the resources to offer me a fully employed role, several months of full-time training and an existing client base. Given the company’s investment, the interview process was challenging but definitely worth it.

The programme includes working with skilled trainers, a dedicated mentor and a talented cohort of trainees. There’s a genuine team spirit, with everyone eager to share their learnings, and I feel lucky to be working with such great people!

Oris Ikomi is early careers engagement manager at the Personal Investment Management & Financial Advice Association.

Our industry has perception challenges, particularly with young people, who see it as slanted to white, middle-class men. This has an impact on the ability of firms to attract and retain talent.

Pimfa wants to help address this, so it has made a commitment to promote talent, inclusion, diversity and equity within the financial advice sector.

We are inviting firms to get involved by visiting secondary schools, or hosting students at their office

To bring this to life, Pimfa launched the ‘Make it’ campaign in 2022, encouraging a diverse mix of talent from all backgrounds through free information, videos and design assets.

This has since evolved to encompass other initiatives, including Wavemaker — an employee volunteering programme offering professionals the chance to give back to the next generation through school and office visits.

The idea is to equip young talent with career advice, financial literacy and industry knowledge, with volunteers sharing their personal career journey along with insights and expertise.

We are inviting firms to get involved by visiting secondary schools, or hosting students at their office, to share their experiences and promote opportunities within their organisation.

Young people see our industry as slanted to white, middle-class men

This allows them to demonstrate a commitment to social responsibility, while contributing to the professional development of their staff.

Pimfa is offering training on how to communicate effectively, along with resources to make sessions engaging and informative.

For more information about Wavemaker or to get involved, visit: pimfa.co.uk

This article featured in the October 2024 edition of Money Marketing. 

If you would like to subscribe to the monthly magazine, please click here.

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I don’t have a fear of flying. I fly a lot. But every time the plane hits turbulence I get a niggling feeling in the back of my mind that maybe this could be the end. The plane will crash, and we will all die.

Logically, I know turbulence is just down to the movement of air and is very unlikely to cause a plane to fall out of the sky. But my illogical mind usually takes over and I find myself contemplating my own mortality.

It’s similar to the feeling I remember having when the stockmarket plummeted on 20 March 2020, courtesy of the Covid pandemic, and my inherited Lloyds shares lost half their value overnight.

The adviser has to be like a psychologist and therapist

My immediate reaction was to sell — and that would, logically, have been the worst possible thing to do with them. But, again, my illogical mind nearly took over.

Luckily, my parents’ financial adviser forcefully suggested that selling would be a stupid thing to do, and showed me one of those graphs that illustrate market movements through history (see example below).

It helped because it demonstrated how, over time, markets will always rise. Even the frightening fall caused by the Covid pandemic now looks like a small blip on the graph.

Graph: Dow Jones 100-year historical chart

Source: Macrotrends

Since I joined Money Marketing in 2021, I’ve spoken to a lot of financial advisers, so I know I’m not the only one to react in that fashion when markets drop. It seems to be the most common response. Psychologically, it makes sense: things are bad, so you want out.

Global jitters

And times are certainly volatile right now.

Last month, stockmarkets around the world took sizeable falls amid fears that the US might be heading for a recession.

The FTSE 100 dropped 3.05%, while the FTSE 250 experienced its biggest fall since former prime minister Liz Truss’s Mini-Budget in September 2022 (4.07%).

People don’t want to just accumulate wealth. They want to be OK, and know their kids will be OK

Meanwhile, the US S&P 500 fell 2.85%, the French CAC 40 plunged 1.88% and the German DAX fell 2.33%.

The Chicago Board Options Exchange Volatility Index — often regarded as the key indicator of volatility — has reached heights not seen since the early days of the March 2020 Covid lockdown and is signalling that uncertainty is on the rise.

This is a time when psychology in financial advice has never been more important.

“A lot of people out there are looking for someone to trust in various aspects of their life. Whether it’s politics, finance or sport, there is a desire to trust people,” says 7IM head of equity strategy Ben Kumar.

“But there’s also a massively increased amount of misinformation. ‘Fake news’ wasn’t a term 20 years ago.

“As an adviser, you are the one who is able to cut through the fake news, at least about the markets, so you’ve got a responsibility to do so and to be as engaged in the likely psychology of people as possible.”

Kumar says advisers themselves need to be ready for when client panic sets in, but also should understand that they cannot prepare their clients ahead of time.

The way that clients relate to you is more important than your expertise and your fees

“You can tell them they’ll be scared. You can tell them not to worry. And you can say markets might fall and they’ll go up and down,” he says.

“But it’s a bit like turbulence on a plane. When turbulence hits, your palms are sweaty, you feel nervous, you feel sick, and you can’t do anything about it.

“Artificial intelligence [AI] I isn’t going to help. Robo-advice isn’t going to help. Virtual reality is not going to help. People will be scared because they’re scared, and that is not going to change.”

Self-belief

Dynamic Planner head of psychology and behavioural insights Louis Williams says that, when we think about clients’ psychology, often we focus just on biases or attitudes to risk; but, in fact, a lot of it is about clients’ behaviour and what may happen in the future, and how they will react.

“As much as our attitudes can influence how we may behave in the future, there are many other elements that affect how we actually behave,” he says.

Financial planners are uniquely positioned to help clients with what has been consistently identified as one of the top sources of stress — money

Some traditional theories suggest that the way we feel about something can affect how we intend to behave. A classic example is if we’re trying to change an aspect of our behaviour.

“If you want to give up smoking, for example,” says Williams, “you may have the view that it’s not good for you, and other people may be telling you the same, so you have that social reinforcement.

“But, if you don’t believe in your ability to give it up, if you don’t have self-efficacy and a level of confidence in being able to do it, that influences your behaviour in a stronger way.”

Williams says advisers must help their clients build such confidence in relation to their ability to manage their finances.

You need to keep the right level of information but be able to present it to all of your clients in the most brain-friendly way

“You can be as risk seeking as you like, and have good relationships and good finances, but when it comes to behaviour you need to have self-efficacy.”

He suggests that those with a higher level of self-efficacy are often the ones to seek advice in the first place.

‘Trusted person’

Advertising tycoon David Ogilvy once said: “The problem with people is they don’t think how they feel, they don’t say what they think, and they don’t do what they say.”

Kumar says: “We all know that, when you tell someone what you’re going to do, you don’t necessarily do it. The reason you say you’re going to do it is maybe different from what you actually think. And then you have emotions that come into it.

“As an adviser, there is a real advantage to being a trusted person to whom a client can almost outsource their financial emotions.”

Embracing the psychological aspects of planning will help a financial planner acquire, service and retain clients, but can do so much more

Williams says a challenge for advisers is in reassuring clients that their feelings about a situation are not wrong.

“Sometimes we think it’s wrong to have negative feelings or to feel worried,” he says. “The adviser needs to learn to explain to the client that having those feelings is OK. The challenge then is how do we manage those emotions?”

Williams adds: “It’s important for the adviser to teach the client more about reappraising the situation, focusing on what they can control, trying to reduce the noise and their exposure to the news, because this just fuels some of the people biases.”

One such bias is recency bias, where people base their decisions on what is happening right now, and that affects what they may do in the future.

Williams suggests advisers can help their clients through tough times by working on their own emotional intelligence.

“When you build your emotional intelligence, you’re able to then understand and recognise the client’s emotions when they’re going through those challenging periods.”

For the majority of an adviser’s clients, it is important that the adviser has more than just good communication skills and technical knowledge

He suggests advisers can then use their own emotions and what they have learned to assist the client through those difficulties, helping them regulate and use their emotions in a positive way.

Emotional intelligence has been shown in research to lead to positive outcomes for not just the client but the adviser as well.

Williams adds: “There is research showing that advisers who demonstrate greater levels of empathy and emotional intelligence have more referrals from clients because they provide better outcomes. They often even have lower stress themselves.”

Kumar says an analogy he uses when speaking to advisers is that, if you have a child and your child is scared at night, it is no good saying to them, ‘There are obviously no monsters in the cupboard because monsters don’t exist.’

Instead, what your child needs is a hug and some reassurance, and maybe for you to open the cupboard and shout at the monster.

“You need to be human about it,” says Kumar.

There is a tendency, especially in a knowledge-based business such as financial advice, to lead with competence rather than warmth

In the same way, he says, remembering to be human is important when it comes to the psychology of advice.

This comes into play long before the client and adviser start working together.

Client motivations

Research indicates that people seek financial advice for all sorts of reasons.

Tom Mathar, head of Aegon UK’s Centre for Behavioural Research, says: “When you ask people, even advisers, why people seek advice, there are all sorts of objective, utilitarian reasons that they mention: things like tax planning, retirement planning and estate planning.

“But I would argue that it is the underlying other reasons that are the important ones.”

Mathar cites a book by psychologist Moira Somers, which lists many of the emotional reasons for which people seek financial advice, whether to save time, offload unpleasantries, have someone else to blame or overcome ‘analysis paralysis’ — the inability to make decisions because you’re too busy over-analysing.

“Typically, people don’t want to just accumulate wealth,” says Mathar.

“They want to live a certain lifestyle, and they want to be OK, and they want to know that their kids will be OK.

There is research showing that advisers who demonstrate greater levels of empathy and emotional intelligence have more referrals from clients because they provide better outcomes

“This is why the psychological side of financial advice is so important to acknowledge and consider, because it’s not just about the utility of why you seek financial advice.”

Of course, there are clients who want advice simply on their financial products and nothing else.

But typically, says Mathar, people are looking for more when they seek financial advice; whether it is life related, family related or work related, it is about “addressing deeper needs”.

A paper published in the Journal of Financial Planning in the US in January last year suggests that the psychology of financial planning covers much more than cognitive psychology.

It seeks to understand a client’s entire psychology of money, including: upbringing, past experiences, learning style, psychological risk profile, money beliefs, financial behaviour, cultural identity, values, motivation, relationship and family dynamics around money, sources of intrapersonal and interpersonal conflicts around money, and more.

When you build your own emotional intelligence, you’re able to then understand and recognise the client’s emotions when they’re going through those challenging periods

“For the majority of an adviser’s clients, it is important that the adviser has more than just good communication skills and technical knowledge,” says Mathar.

“It is so important for financial advisers to understand the emotional landscape their clients have: their psychographic profile, what motivates them, what impedes them, what keeps them up at night, and all those things.”

Building rapport

Knowing that there are more important considerations for a potential client than just technical knowledge can help advisers with onboarding.

BareRock head of behavioural science and chief experience officer (advisory) Babs Crane suggests that, when interacting with a client — potential or new — advisers should aim to build rapport and approachability.

“That should be the thing you lead with, before you follow it up with demonstrating your competence and giving information,” she says.

There is a tendency, adds Crane, especially in a knowledge-based business such as financial advice, to lead with competence rather than warmth.

However, she argues, the rapport-building phase has been shown in several psychological tests to be the most important thing when building trust with clients.

As an adviser, there is a real advantage to being a trusted person to whom a client can almost outsource their financial emotions

Williams says there has been a lot of research on the factors that are important when a client decides to work with an adviser.

“The way they relate to you and build that emotional relationship with you is more important than your expertise and your fees and things like that,” he says.

When a client has come on board, how you then engage with them remains important, and the financial services sector is notoriously jargon heavy.

“The more we can simplify the language in our profession, and reduce jargon so as to demystify personal finance, the better,” says Cathy Brennan, a senior financial planner at Knightsbridge Wealth Management who also owns a financial coaching practice.

Tailored approach

But Crane warns that advisers should not be tempted to “dumb things down” too much for all clients, but should present things in a digestible way.

“There are differences between everybody,” she says.

You can be as risk seeking as you like, and have good relationships and good finances, but when it comes to behaviour you need to have self-efficacy

“There are people who have a really high need for cognition, who want to learn about things and understand things — that makes them feel a lot better.

“Then there are people with very low needs for cognition. They just want the really basic information and that’s enough for them.”

Crane adds: “You need to keep the right level of information but be able to present it to all of your clients in the most brain-friendly way.”

Some advisers are resistant to talking about the importance of psychology and behavioural analysis in advice.

The Journal of Financial Planning paper suggests that the integration of the psychology of financial planning into the financial planning knowledge base offers an opportunity to better understand and serve clients.

A lot of people out there are looking for someone to trust in various aspects of their life

“A financial planner’s work is much more than just giving a client financial advice and managing a client’s investments,” it says. “Financial planners are uniquely positioned to help clients with what has been consistently identified as one of the top sources of stress — money.

“Embracing the psychological aspects of financial planning will help a financial planner acquire, service and retain clients, but can do so much more.

“The psychology of financial planning will equip our profession with the theory and tools we need to help clients reach their financial goals, improve their relationships and increase their financial and life satisfaction, and help improve the financial health of society at large.”

Commercial need

Many commentators believe there is a commercial need to start embracing the psychology of advice.

“There is a lot of automation happening,” says Mathar.

“DIY is on the rise when you look at the DFMs [discretionary fund managers]. And who knows what AI’s next move is in the industry?”

The adviser needs to learn to explain that having negative feelings is OK

This, he argues, means that a lot of the traditional skills of a financial adviser, such as stockpicking and risk profiling, have become automated.

Kumar echoes this.

“In the world we live in now, most investment propositions are centralised and broadly sensible. There is also a framework in place for risk rating clients. So, in most cases, financial advice comes down to the psychology.

“People don’t know what it’s like to see markets go up and down until they’re invested.

“So, the adviser needs to be like a psychologist and therapist, and prepare people for what’s going to be a really difficult time in their life.”

This article featured in the September 2024 edition of Money Marketing. 

If you would like to subscribe to the monthly magazine, please click here.

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In everyday language, being ‘independent’ is a positive thing. People who are described as independent are self-sufficient and self-confident; they know their own mind. An independent tribunal or inquiry is one where we expect a fair and impartial hearing.

Independence is even at the heart of the UK constitution, through the separation of the executive, legislative and judicial powers of the state.

In financial services, however, independence has a specific regulatory meaning that developed in response to various financial scandals of the early 1980s.

Not all people who say they are independent are in fact independent

Today’s independent financial adviser — as set out in the FCA Handbook — must look at a sufficiently diverse range of relevant products to ensure a client’s investment objectives can be suitably met. IFAs cannot limit themselves to in-house products or those offered by firms with which they have a connection or relationship.

However, all businesses need to be profitable to survive, and to do this they cannot exist in a vacuum. Even with the ‘independent’ badge, advisers are not self-sufficient. To be able to act in the best interests of the client, they must navigate a range of relationships — with product providers, platforms and technology suppliers.

Other relationships — with networks, support services or external investors — may also be a necessity for some firms.

“Every good adviser strives to treat clients with an open mind, prioritise their needs and deliver bespoke solutions,” says Danielle Slater, director of IFA firm Stephen Eve Financial Planning.

True independence doesn’t exist — we don’t do this for free

“However, it would be naive to claim that recommendations were entirely free from unconscious bias, stemming from factors such as relationships with fund managers or societal influences, which can impact the true independence of the advice process.”

So, can financial advice ever be genuinely independent?

Defining independence

Advisers who remember the advice industry in the early 1980s tend to refer to it as ‘the Wild West’.

One of the problems — outlined by Jimmy Hinchliffe in ‘The Financial Services Act: a case study in regulatory capture’, a thesis submitted to Sheffield Hallam University in 1999 — was that clients often had no idea if the adviser was acting in their ‘best interests’ independently, or if they were selling products for an insurance firm or bank. As a result, clients were left in the dark about any potential conflicts of interest or bias.

Today’s market is enormous. It’s impossible for any adviser to look at what is available from scratch for every client

Independent advice in the regulatory sense came into being through the Financial Services Act 1986. The act established a polarised regime, whereby financial advisers had to disclose to clients whether they were either an independent ‘whole of market’ adviser or a tied adviser recommending the products of one company.

This regime was replaced by ‘depolarisation’ in 2004, which permitted advisers to form multi-tied arrangements with product providers. Then, in 2012, the Retail Distribution Review (RDR) created the current definitions of independent and restricted advice.

The regulatory definition of independence still boils down to an adviser’s approach to research and recommending investment products. But some commentators question the relevance of this given that the advice sector has moved away from product sales towards holistic financial planning.

Does being ‘whole of market’ carry as much clout as it used to, bearing in mind that it was established in response to problems that existed in the market decades ago?

IFAs are able to recommend niche products to clients with particular needs, observes FTRC founder Ian McKenna.

It’s about looking not at the clients going into the main platform or proposition but at how the firm handles exceptions to the rule

“But how many clients need all those products all the time?” he asks.

McKenna says advisers used to have to sell products, but now it can be “legitimate, viable and appropriate” to tell clients to do nothing with their portfolio.

“Is the right decision for the financial advice industry something that was created 40 years ago?” asks McKenna. “The industry has moved on so far — it’s now a profession.”

Other commentators think being whole of market is not as relevant as it used to be, but they still regard it as a hallmark of independence because it provides clients with the greatest choice and flexibility.

However, independence is not just about the regulatory requirements — many advisers have their own ‘common sense’ interpretation of what genuine independence means.

Conflicts of interest

Retired IFA Dave Robinson believes that advisers can achieve true independence by being free from influence and conflicts of interest. However, he does not think it is feasible to be independent in the regulatory sense.

I’d like to ask the people at the FCA if they have engaged an adviser and been through the formal advice process

“In 1986, it was possible to be whole of market for most clients as the market was so much smaller,” says Robinson. “Now, it’s enormous and it’s impossible for any adviser to look at what is available from scratch for every client who walks through the door.

“So, every adviser has to put together some sort of proposition. But that proposition has got to be your own thoughts and ideas — not influenced by anyone else.”

Rather than try to research the entire market for every client, many advice firms have a centralised investment proposition (CIP) in place. This focuses on a range of providers and products that suit their client base and should be regularly reviewed.

Although both practical and a vehicle through which consistent advice can be offered, could a CIP compromise an advice firm’s claim to be genuinely independent?

“A lot of people with CIPs and panels would still call themselves independent because they have done the work and pulled it all together,” says Angus MacNee, chief executive of IFA network ValidPath.

The closer the decision makers are to the client, the easier it becomes to be genuinely independent

“That may be true, but it can introduce a conflict of interest.”

MacNee says advice firms can be genuinely independent if they have a CIP, but it depends on whether that would be the only option for clients or if other solutions could be used where research indicated they were more appropriate. Put another way, it is how advisers deal with clients going ‘off panel’ that really counts when it comes to independence.

“It’s about looking not at the clients going into the main platform or proposition but at how the firm handles exceptions to the rule,” says The Lang Cat consulting director Mike Barrett.

“The danger is that independent advice firms fall into the trap of using the same platform and same CIP for all clients, which restricts you around them. In that case, client segmentation and due diligence are not robust.”

‘Independence’ can mean different things to people. As a result, its interpretation has become a bit muddied in the advice world, believes MacNee.

It is fair to charge a percentage fee for complex cases as long as the fee is transparent

“Being independent means the adviser has every tool in the toolbox and is seeking only to support what’s in the client’s best interests, with no commercial gain one way or another in the solutions they provide,” he says. “But not all people who say they are independent are independent.”

MacNee says advisers may make an increased margin if a client uses a certain platform or solution.

“How they are incentivised could create a conflict of interest that rubs up against authentic independence,” he adds.

For wealth management firm Five Wealth, genuine independence is about ‘independence of mind and spirit’ — genuinely servicing clients without any conflicts of interest.

“We are an owner-managed business and we have no external influences,” says the firm’s associate director, Liz Schulz.

“We can challenge the product providers to do better and not feel compromised.”

If clients’ requirements are the same, why should some pay more than others?

Ownership

During the polarised regime, an IFA could not place business with a provider that owned more than 10% of that advice firm unless they could demonstrate it was the best product in the market.

This ‘better than best’ rule was abolished under depolarisation in 2004 because it was felt to be anti-competitive and restricting advice firms’ access to investment capital.

Instead, IFAs were required to tell consumers about any financial ties they had with providers. Sales targets, or other incentives to encourage advisers to do business with the provider that owned them, were also banned.

How an adviser is incentivised could create a conflict of interest that rubs up against authentic independence

The FCA Handbook makes it clear that being owned by a product provider, wholly or partially, is not a barrier to a firm providing independent advice now, as long as the firm is not limited to that provider’s products, looks elsewhere in the market and is not biased. However, Robinson cannot square this with genuine independence.

“I think it’s complete nonsense that a firm of financial advisers that is wholly owned by an insurance company or investment manager can describe itself as independent,” he says.

When he was advising, Robinson had a client whose previous adviser had been part of a firm that was owned by a provider. The client had been invested with that provider in investments that Robinson felt were unsuitable.

However, other commentators say there will be times when the products provided by a firm that invests in or owns an IFA business are the best fit for the client.

A lot of people with CIPs and panels would still call themselves independent because they have done the work and pulled it all together

“There’s no issue with using in-house solutions as long as you can show you are meeting the client’s requirements,” says Morningstar Wealth head of distribution Ben Lester.

“I would have concerns if the majority of customers were going into them. But, if there’s a good split across third-party solutions, that would suggest the adviser has done their job and researched the market.”

Vision Independent Financial Planning is an IFA network that is a wholly owned subsidiary of asset-management firm Rathbones Group. Speaking to Money Marketing, Vision chief executive Zoe King says the network’s ownership structure does not compromise the independence of the IFAs, who are both appointed representatives (ARs) of Vision and limited companies in their own right.

“The AR firms contractually own their client relationships and can leave the network, taking those client relationships with them,” she says.

The industry has moved on so far — it’s now a profession

“If Vision were to even attempt to influence where an AR firm placed business — outside suitability, any restrictions on regulated permissions or our proposition governance standards for the Consumer Duty — we would expect significant objections by those firms, given how fiercely they wish to protect their independence, as well as their ability to win new business on their own merit.

“Why would we want to lose them to a competitor?”

The problem with fees

An area that is becoming a battleground for independent and restricted advisers alike is fee structures.

Prior to the RDR, it was commission that was seen to be undermining independence, due to concerns that advisers were selecting investment products that would pay them the most. Since the RDR, however, advisers have charged fees, but some say there is a conflict of interest when charging clients a percentage of assets under management.

There’s no issue with using in-house solutions as long as you can show you are meeting the client’s requirements

Can advisers say they are genuinely independent if they will earn more money from a client investing — and staying invested — rather than doing something else with their money? Should investors with a bigger portfolio be charged more than someone with less money, even if the work required is similar?

“We all think we act with integrity and independence, but the reality is that in some cases we may not always note conflicts of interest or challenge ourselves on those conflicts of interest,” says Smith & Wardle Financial Planning partner Helena Wardle.

In 2018, Wardle did a master’s degree in financial planning, during which she explored fees.

“I’ve always been intrigued by fees as I couldn’t understand the fairness of charging based on assets under management,” she says.

“If clients’ requirements are the same, why should some pay more than others?”

Wardle runs two businesses and both steer clear of percentage charging. Smith & Wardle charges fixed fees and the other business — Money Means — is a digital advice service that is paid for by a subscription.

Being independent means the adviser has every tool in the toolbox and is seeking only to support what’s in the client’s best interests

Data from the Financial Conduct Authority’s Retail Mediation Activities return shows that, in 2022, 3,639 financial advice firms charged an initial percentage-based fee and 3,877 firms charged an ongoing percentage-based fee.

In contrast, just 1,753 firms charged initial fixed fees and 950 firms charged ongoing fixed fees.

“One of our biggest challenges is that clients are not spending enough,” says Wardle.

“So, we encourage them to think about whether they want to gift money to their family now and see them enjoy it, rather than wait until they’re dead. There’s no conflict of interest for us to keep it under management.”

Wardle is extremely concerned about what happens to clients who are charged percentage fees when they have made withdrawals from their pension pots and those pots fall below the adviser’s minimum for taking on clients.

“I’ve seen many examples of clients being sent letters of disengagement from advisers who were happy to take the creamy profits,” she says. “Charging based on assets under management is a huge conflict of interest.”

The danger is that independent advice firms fall into the trap of using the same platform and same CIP for all clients

Robinson — who always charged fixed fees on a time-costed basis when advising — agrees.

“I’m 100% sure I’ve seen percentage-based fees encourage people to invest more than they should have done and in an inappropriate risk profile,” he says. “The rationale for this is higher-risk investments will go up more and the adviser gets paid more.”

When advising, Robinson was asked to give a second opinion on a case where an adviser had recommended equity release rather than drawing from investments.

“There can be situations where that is appropriate — but in this case it was sensible to draw from the investment,” he says. “But, if a client makes withdrawals from their investments, it will affect the adviser’s ongoing fees.”

IFA firm FPC offers clients a fixed-fee option.

FPC managing partner Moira O’Shaughnessy says: “This is priced on how long the work is going to take us. We can rarely cover our costs, but we don’t want this to be a barrier.”

Every adviser has to put together some sort of proposition. But that proposition has got to be your own thoughts and ideas — not influenced by anyone else

O’Shaughnessy thinks it is fair to charge a percentage fee for complex cases as long as the fee is transparent.

“That is where the Consumer Duty comes in: how can you evidence that you add value? It forces you to look at your charges to see where you add value.”

Does size matter?

Some advice firms, especially small ones, join a network for help with regulatory and compliance requirements. There are plenty of positive experiences of how networks can help advisers maintain their independence.

Schulz, for example, says: “We’re part of the Sense network and I think it’s a good way to build our business. They require us to justify every decision we make, which is an extra level of compliance.”

Susan Hill Financial Planning director Susan Hill agrees.

“Their compliance enforces what the FCA asks us to do — that’s why I stay with a network,” she says.

However, Hill’s previous experiences show that not all networks are equal. While some are fully supportive of IFAs, others seem controlling and restrictive.

It would be naive to claim that recommendations were entirely free from unconscious bias

Hill sets an initial flat fee and a percentage-based ongoing fee. Many of her clients are women, some of whom are divorced and do not have much money, but a previous network would not permit her to charge a flat fee for some clients.

“They pander to the FCA and the Consumer Duty, but they haven’t worked out what’s happening at the coalface,” she says.

According to Hill, the problem arises because the senior staff of a network — and even the regulator — have always managed their own money and have never been to see an IFA in a personal capacity.

“I’d like to ask the people at the FCA if they have engaged an adviser and been through the formal advice process,” she says.

Some commentators point out that small firms make up the majority of the IFA market, with many comprising one-person firms. Given that it costs more to run an IFA firm than to run a restricted firm, it is easy to assume that it is harder for small firms to be independent. However, Barrett has a different perspective.

Is the right decision for the financial advice industry something that was created 40 years ago?

“The closer the decision makers are to the client, the easier it becomes to be genuinely independent,” he says. “If the person giving advice is also making decisions on how the business is run, it’s easier to say, ‘This client needs something a bit bespoke,’ rather than ring head office and be told they’re restricted.”

However, for some advisers, true independence is a pipe dream.

“True independence doesn’t exist — we don’t do this for free,” says Wardle. “We just have to acknowledge our conflicts of interest and manage them.”

This article featured in the June 2024 edition of Money Marketing. 

If you would like to subscribe to the monthly magazine, please click here.

The post Cover story: Why the reality of impartial advice falls short appeared first on Money Marketing.

Since the Covid pandemic and the subsequent lockdowns, people have become more aware of, and more willing to talk about, their mental health. Mental Health Awareness Week, which takes place this month, is testament to this increased openness.

However, poor mental health itself, sadly, has not gone away. The stresses of everyday life, combined with the cost-of-living crisis, are contributing massively to a rise in conditions such as anxiety and depression.

According to the mental-health charity, Mind, one in four people will experience a mental-health problem of some kind each year in England.

A recent study by the Mental Health Foundation found that 73% of the population had felt anxious at least sometimes in the previous two weeks. One in five people (20%) felt anxious most or all of the time.

Toll of the profession

Contemporary research suggests that many financial advisers are not immune. In fact, it reveals they are struggling to cope with the toll the profession is taking on them.

And, while it is unfair to point the finger of blame solely at the increased burden of regulation, the statistics show it is having a profound impact on advisers’ mental health.

You often hear people say, particularly older advisers: ‘I can’t retire because my clients need me.’ No, they don’t; they need financial advice

In its ‘State of the Advice Nation’ report, published in February, The Lang Cat found that fear of further regulation was the main issue keeping 31% of advice business owners awake at night.

The report, which surveyed 400 members of the advice profession, revealed that advisers were particularly worried about the volume of new regulation and the pace at which it was coming at them.

It’s easy to see why. Since the implementation of the Consumer Duty in July 2023, it seems there has been a stream of regulatory changes, proposals and warnings.

You need only check The Lang Cat’s Analyser tool to discover just how many.

In November last year, the Financial Conduct Authority sent out a Dear CEO letter to all wealth managers and stockbrokers, warning them its supervision would become “more targeted, intrusive and assertive”.

In the same month, the regulator published its Sustainability Disclosure Requirements consultation policy statement, including the introduction of four sustainability investment labels.

While advisers strive to improve the financial health of clients, the growing regulatory burden seems to be exacting a high cost on their own mental health

Although these rules are likely to have a greater impact on asset managers, advisers will need to get to grips with them too.

More recently, in February, the regulator wrote to 20 of the largest financial advice firms, requesting information about their delivery of ongoing services to clients. It asked if they had assessed their ongoing services in response to the introduction of the Consumer Duty, and whether they had made any changes as a result.

Other FCA initiatives looming over advisers are the Advice Guidance Boundary Review, the Appointed Representatives regime, work to identify vulnerability in client bases and the retirement income advice thematic review.

Then there are numerous policy changes, of which advisers must keep abreast.

Staying on top of all these things and filling out forms are a full-time job in themselves.

Small firms

Such demands can be particularly challenging for smaller firms, which may not have a compliance or regulatory function in house.

Steve Nelson, Lang Cat insight director and co-author of the ‘State of the Advice Nation’ report, says the burden of regulation continues to be a “massive headache” for firms, adding: “It’s a real concern to see this driving some to breaking point.”

I don’t think the environment of many firms is particularly helpful. There may be pressure on generating fees, or on getting bigger clients

He says many respondents from smaller firms spoke about the disproportionate impact on them.

In another study, by CoreData Research — published in September last year — 35% of advisers said regulation was negatively impacting their mental health, while 63% said it was affecting their ability to do their job. Only one in 10 disagreed with the latter statement.

“While financial advisers strive to improve the financial health of clients, the growing regulatory burden seems to be exacting a high cost on their own mental health,” says CoreData editorial director Will Roberts.

He says the Consumer Duty is proving “particularly problematic”, with a majority of advisers saying it will raise their business costs, increase advice fees and widen the advice gap.

“Amid these concerns, one in 10 advisers said they were considering leaving the industry,” adds Roberts.

The younger advisers need to be trained, and be aware of, what they are going to suddenly take on

“So, while the regulator expects advisers to identify and understand the needs of vulnerable clients, more should be done to look after vulnerable advisers who may be suffering in silence.”

As if more proof of the strain on the profession were needed, research last year by Embark Group found nearly two-thirds — 60% — of advisers believed that ad hoc changes to tax policy were having a larger effect than before on their business processes.

Add to this the fact that a similar number — 63% — of advisers say their firm will need to outsource to meet the Consumer Duty requirements, and a picture emerges of regulatory-driven workloads driving up costs.

RDR 2.0?

Verve Group head of adviser support Christian Markwick says: “The profession is going through so much change at the moment, with the Consumer Duty, thematic reviews, capital redress, the repercussions of the British Steel pensions scandal, technology… it feels a bit like RDR [Retail Distribution Review] all over again.”

If you speak to anyone in the police service, medical profession or counselling, they are trained to leave that at work and not take it home with them

He says some — particularly more mature — advisers are at a loss to know what to do.

“Quite often the more established, usually smaller, business owners just can’t see the wood for the trees, and it’s very much affecting their mental health.

“They’re talking about selling businesses that they weren’t going to sell, and saying they just need to get out.”

David Owen, formerly Openwork wealth proposition director, agrees. He says some of the older advisers, who have been advising clients since the 1970s, have gone through the RDR and are now being asked to comply with all the new regulatory changes.

“There are a lot of advisers who are vulnerable themselves,” he says. “They’re being asked to do things that they’re just not capable of doing any longer.”

Last month, Money Marketing conducted a poll that asked advisers what impact, if any, regulation was having on their mental health. Of the 182 people who responded, almost half (46%) said it was so bad they were considering leaving the profession.

If it starts getting too emotional, step away and bring in an expert, such as a therapist or a financial coach

Altogether, 22% described regulation as having a ‘big impact’ on their wellbeing; 15% said it was having ‘a bit of an impact’; while only 17% said it was having ‘no impact’.

Regulation is important — few will dispute that. It ensures that consumers get the best outcomes, and helps to keep firms accountable for their actions and for the amounts they charge.

But is it realistic, or financially viable, for smaller firms to keep up with the pace?

And what are the regulators doing to ensure that implementing their changes is achievable?

The FCA was approached for comment but had not responded when MM went to press.

Advice, not therapy

It isn’t all about regulation, of course. It would be unfair — and inaccurate — to blame that alone for advisers’ mental-health struggles.

There is another issue that newer advisers may not have been prepared for when entering the profession, and that is just how close advice can get to therapy.

Supporting our advisers’ mental health is vital

Conversations around retirement, divorce, illness and death mean many advisers have deeply personal and, at times, upsetting discussions with their clients. But, unlike therapists, who are trained to deal with these situations and even have access to their own counsellor, advisers generally don’t have much preparation or support.

“We’re not counsellors, we’re not therapists,” says Ovation Finance founder Chris Budd. “We are here to help clients understand what their money is for. But, if that starts getting too emotional, step away and bring in an expert, such as a therapist or a financial coach. Don’t feel you’ve got to go there.”

Budd says some advisers are so worried about unlocking emotional stuff they can’t handle, they avoid bringing it up at all.

“I don’t think that’s very helpful either. But let’s just dial it down a little and not get too carried away with the massive impact that we can have.”

He says an adviser is not there to change a client’s life.

“You might, and that’s great, but it’s not your job to do so.”

Some, including Markwick, want to see advisers receive more support for dealing with difficult client conversations.

They’re talking about selling businesses that they weren’t going to sell, and saying they just need to get out

Markwick believes that professional bodies from the sector, such as the Chartered Insurance Institute (CII), the Chartered Institute for Securities & Investment and the London Institute of Banking & Finance, should introduce this type of module into their training courses.

Budd agrees.

“I think the younger advisers need to be trained, and be aware of, what they are going to suddenly take on. I don’t think a lot of them are ready for it,” he says.

“It’s never even crossed their minds that they’re going to find out things about clients that their husbands and wives don’t know.

“They’re going to find out some horrific things that they’re either going to have to keep confidential or deal with.

“I don’t think it’s ever been part of any training. We need to get advisers physically and mentally able to take that on board.

The profession is going through so much change at the moment… it feels a bit like RDR all over again

“If you speak to anyone who works in the police service, medical profession or counselling, they are trained to leave that at work and not take it home with them.

“I think most advisers will take it home because they’ve never had training on how to deal with it.”

Budd points out that there are many government-funded courses, such as training on mental-health first aid, and he does not think the profession has even considered tapping into them.

Mental-health training courses

But how likely is this to happen? And how quickly?

The CII has built an extensive body of learning for members around mental health, with a range of self-awareness and management-skills courses in its free, career learning hub, FutureMe.

We’re not counsellors, we’re not therapists. We are here to help clients understand what their money is for

It also has more practitioner guidance on how to handle clients with mental-health conditions within Financial Assess, its online learning and compliance system.

The most recent and innovative example is a virtual-reality workshop to help advisers engage with clients in vulnerable circumstances, which the CII is offering on 29 May and 20 June. You can register for the Virtual Reality (VR) Workshop at: www.cii.co.uk/learning/training/vulnerable-clients-virtual-reality-vr-workshop/

Debt-advice firm Money Wellness has put in place several initiatives to help its advisers with their own mental health.

For example, after every client call the adviser has 15 minutes to decompress and reflect on what’s been discussed. If they still don’t feel great afterwards, they can discuss their feelings with their team leader and take time out until ready to recommence.

Quite often the more established, usually smaller, business owners just can’t see the wood for the trees

Money Wellness head of colleague engagement Stacey Cannon says: “Our employees are on the frontline of the cost-of-living crisis.

“They’re often the first person a customer has spoken to about their money worries. Because of this, they listen to heartbreaking stories every day.

“These people could be losing their home, their family, their livelihood, and in some cases feel suicidal. We don’t just help with debt; we listen to their stories and situations and then signpost them to additional specialist support.

“Helping people in their darkest hour can be hugely rewarding, but it can also be pressurised and mentally exhausting. Supporting our advisers’ mental health is therefore vital.”

As is often mooted, there is already a huge shortfall in the number of advisers needed to meet the growing demand, so the fact that many advisers are feeling pushed out by so many factors affecting their mental health should have alarm bells ringing.

Helping people in their darkest hour can be mentally exhausting

The UK has around 28,000 financial advisers, but St James’s Place Financial Adviser Academy head Andy Payne has said he thinks that at least another 50,000 are required.

There are, of course, many schemes and courses to train the next generation — including Future Financial Adviser, the MM-backed initiative. However, the last thing we need right now is more advisers exiting the profession, potentially widening the advice gap further.

Company culture

Another stressor for advisers is the culture within some firms. Although the sales-driven philosophy of the 1980s and ’90s has largely faded within the advice sector, it still exists.

Last year, MM features editor Maria Nicholls wrote a leader column about how sales pressure was forcing some advisers to leave the profession.

“I was shocked to read a piece by one of our columnists, Vicky Ngoma, explaining why she was giving up on becoming an adviser,” she wrote.

Ngoma had said that, as a self-employed IFA, she had felt pressure to put herself in front of groups with more disposable income than she had, pushing product sales and basically “helping the rich to get richer”.

While the regulator expects advisers to identify vulnerable clients, more should be done to look after vulnerable advisers who may be suffering in silence

Maria wrote: “This undercurrent of sales pressure is not acceptable. The profession must be on its best behaviour to attract the talent it so badly needs.”

Budd says: “I don’t think the environment of many firms is particularly helpful. There may be pressure on generating fees, or on getting bigger clients. That environment can be unhealthy.

“Not all firms these days are like that — it’s not quite Wall Street any more. There’s been a very helpful culture shift. But, if there are still firms like that, it’s not going to be very good for mental health.”

Obligation to clients

Stresses of the job and not having ‘enough hours in the day’ also featured in the Lang Cat report as primary factors for keeping advisers awake at night. One in 10 even said the fear of failing to meet client expectations was causing sleepless nights.

We often hear advisers say their clients are almost like friends. This is a good thing in that it means advisers really do want what is best for them. But there is a danger it can lead to the adviser putting the needs of their client ahead of their own mental-health needs. This is something that concerns Budd.

“You often hear people say, particularly older advisers: ‘I can’t retire because my clients need me.’

“No, they don’t; they need financial advice.”

Amid these concerns, one in 10 advisers said they were considering leaving the industry

Budd says he had thought all the clients at Ovation were there because of him. But, when he took a step back from advising, he handed over his clients to other advisers — and those clients are all still there.

“Nobody is that important,” he insists. “You need to recognise that your role is about helping the client and it’s not about you.”

Whether it’s more training to help advisers cope with the emotional aspects of talking to clients, or a scheme to help ease the burden of regulation, or even just a forum where advisers can talk about their struggles — something needs to be done to reel them back from breaking point.

This article featured in the May 2024 edition of Money Marketing. 

If you would like to subscribe to the monthly magazine, please click here.

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We are in the midst of a pensions crisis.

For a long time, experts have warned that UK adults aren’t saving anywhere near enough money to ensure a comfortable, or even moderate, retirement.

But now it feels as though we’ve reached breaking point. If pensions were a person, it’s probably safe to say they’d be on life support.

Let’s take a quick look at the facts.

Around a fifth of working-age private-sector employees — approximately 3.5 million people — do not pay anything into their pension. And, according to the Institute for Fiscal Studies (IFS), 61% of people who are making contributions are saving less than 8% of their earnings.

This pension legislation merry-go-round has eroded the public’s trust

The IFS has also discovered that 87% are contributing less than 15% of earnings — the amount recommended by Lord Turner’s Pensions Commission when carrying out its review two decades ago.

In addition, separate research from wealth manager Investec Wealth & Investment has revealed that one in four people who previously paid into a pension has stopped. Meanwhile, 12% have “dramatically or slightly reduced” their monthly contributions, with almost half of those surveyed saying they do not plan to restart or increase them.

And there’s a second problem: people taking money out of their pension pots to help either themselves or family members with the day-to-day cost of living.

According to The Lang Cat, last year was the worst on record for outflows from advised platforms, with pensions being “hammered”.

What does this mean for retirement?

All this, of course, means more and more people will have to either delay their retirement, return to work or never retire at all.

Every year, the Pensions and Lifetime Savings Association (PLSA) publishes a report called ‘Retirement Living Standards’ (RLS). The report looks at three retirement lifestyles — minimum, moderate and comfortable — and estimates how much money people will need per year to achieve each level.

The benchmark for minimum auto-enrolment contributions should be 12% because 8% is nowhere near enough

The latest findings, perhaps unsurprisingly, reveal an increase in all three amounts — reflecting the impact of rising prices, particularly in essential areas such as food and energy.

According to the RLS, the minimum amount needed for a “dignified” retirement is £14,400 per year for singles and £22,400 for couples.

This allows for £126 per week for food, one UK holiday, monthly dining out and bi-weekly leisure activities. It assumes people have access to public transport and do not own a car.

Meanwhile, the amount needed for a moderate standard of living in retirement has increased to £31,300 per year for singles and £43,100 per year for couples. Offering “financial security and flexibility”, it provides £225 weekly for food, European and UK holidays (two weeks in total) and financial help for family members.

Finally, to be comfortable in retirement, singles need £43,100 per year, while a two-person household needs £59,000.

This allows for some luxuries such as beauty treatments and European holidays (two weeks), and £291 weekly for food.

It is not the right time [to get people to pay more in] but we should start planning now

The PLSA suggests a savings pot of around £530,000 in today’s money terms is needed to achieve this. That’s in addition to state pension income.

The latest figures from the Office for National Statistics show that the average pension pot for someone aged 65 and over is £81,100.

Those aged between 55 and 64 have built up an average of £107,300, while those between 45 and 54 have saved £75,500.

Those aged between 35 and 44 typically have £30,000.

Overall, 30% of people from the Investec survey admitted that stopping or reducing their contributions would have an impact on their retirement date.

In total, 6% said they wouldn’t be able to retire at all.

The same research from Investec revealed that almost half (48%) of people were worried that their pension savings wouldn’t be enough to last them through retirement.

Our research shows that poorer households may find it challenging to afford higher pension contributions

The stats reinforce their concern. According to Standard Life’s ‘Retirement Voice’ report, 14% of retirees aged over 55 have gone back to work. Almost two-thirds of these said income issues were the driving force.

Another 32% said the reason they had returned to work was that living costs had increased more than they expected.

Why are people not saving enough?

The primary reason people gave for stopping or reducing contributions — or withdrawing money from their pensions — was the cost-of-living crisis.

Another argument is that pensions are just too complicated — despite concerted efforts over the years to make them easier to understand.

Last year, the IFS spoke to more than 3,000 working-age people to examine their concerns about the pension system and investigate their understanding of it.

Only 20% of people aged 25 to 64 could correctly state (to within £20) how much a full state pension was worth in pounds per week, and 58% said they did not know.

One in four people who previously paid into a pension has stopped

Overall, 65% of 25- to 49-year-olds couldn’t answer.

This begs the question: are pensions ‘sexy’ enough for younger people? Do they really care about putting aside money now that they aren’t going to see for another 40 or 50 years?

For many in their 20s, retirement is the last thing on their mind.

And yet, a few weeks ago another report was published by Investec that said people needed to start saving £460 per month during this time to become a pension ‘millionaire’ — in other words, if they wanted a pot of £1m or more when they reached retirement age.

However, with the average salary in the UK being £35,000 — or roughly £2,400 take-home pay per month after tax — that is a huge ask for many.

Even if we assume the average single 20-something is living with their parents — a broad assumption to make — £460 a month is a lot of money to save towards a pension.

Two things are obvious in this UK pensions challenge: cross-party collaboration is crucial, and some form of stability is needed

We’re always being told that Millennials or Gen Z are ‘wasting’ their money on luxuries such as oat-milk lattes, Netflix subscriptions and smashed avocado on toast.

But cutting back on some, or even all, of these things is unlikely to result in £500 of disposable income per month.

What has been done?

We have seen several major reforms over the past two decades, including pension simplification, automatic enrolment, state-pension reform and pension freedoms.

Auto-enrolment, which was implemented in 2012, has been widely credited for getting millions of people saving for retirement who hadn’t previously done so.

The government is currently trying to push through some challenging policy reforms. These include the consolidation of the entire pensions sector into fewer, bigger, better-run schemes that invest more heavily in the growth of the UK economy.

The constant tinkering with pension tax rules needs to stop

It is also trying to deliver the consolidation of small pots, including the possibility of a lifetime provider, or a pension ‘pot for life’.

The reforms would enable savers, rather than the company they work for, to choose their own pension scheme for auto-enrolment.

Under current rules, UK firms are required to set up a pension scheme for employees that meets certain minimum standards. This means many people, as they move from job to job, build up multiple pensions throughout their career, with a growing risk that those pots become ‘lost’.

Advocates of the ‘pot for life’ reforms argue that allowing employees to choose their own auto-enrolment scheme would help solve the £27bn ‘lost pension pots’ problem.

However, questions remain over the cost of implementing the proposals, which could require businesses of all sizes to link up with dozens of providers.

Auto-enrolment has been responsible for getting people to save, but many feel it needs to be reviewed again

AJ Bell believes that pensions dashboards remain “the most obvious solution” to connect savers to their pension pots and, ultimately, enable more people to consolidate. It says the success of auto-enrolment has “exacerbated the challenge of people losing track of their pensions”.

Some estimates suggest the average person changes employer around 11 times during their career, with each job hop potentially creating a new pension scheme with a new provider.

What else can be done?

So, if people aren’t saving enough, but cannot afford to save more, what else can be done?

Auto-enrolment has been responsible for getting people to save, but many feel it needs to be reviewed again.

Currently, enrolment is automatic for adults aged 22 or over, earning a minimum of £10,000. The government is reportedly considering lowering the qualifying age to 18 and starting contributions from the first £1 earned. It is also looking at ways to bring the self-employed into auto-enrolment.

A report by Investec said people needed to start saving £460 per month during their 20s to become a pension ‘millionaire’

It is hoped that removing these barriers — which some thought might have been confirmed in the Spring Budget — could potentially see millions more people saving from an earlier age.

PLSA director of policy and advocacy Nigel Peaple believes that a gradual increase in minimum auto-enrolment contributions, from 8% to 12% over a decade, is the answer.

He says this will ensure “a sustainable retirement savings system through most of the rise falling on employers, so both employers and employees would pay 6% each”.

Standard Life UK chief executive Andy Curran, when speaking at the NextWealth Live conference in London last month, said he thought the benchmark should be 12% because “8% is nowhere near enough” .

Research by People’s Pension shows there could be an appetite for this, with 54% of people saying they would be likely to contribute more if their employer matched their contributions.

Away from auto-enrolment, there have been calls for a long-term savings commission, with the likes of Aegon and Nucleus in particular giving their backing.

The Labour Party said it would review the current state of the pensions and retirement savings landscape if it came into power

The latter has recently written to pensions minister Paul Maynard and his political counterparts to emphasise the importance of such a commission.

Nucleus said there needed to be greater cross-party agreement over pensions and savings policy to ensure that more people could feel confident about their retirement prospects.

Could introducing financial education into primary schools, and teaching children at an early age about the benefits of saving money — as is currently being considered by the cross-party education committee — be another way of engaging people when younger?

There’s also an argument that the government should look more closely at countries that have got their pension system right and take steps to replicate it here.

Each year, the Mercer CFA Institute publishes its Global Pension Index, which compares 39 retirement income systems, covering a wide range of policies and practices.

More and more people will have to either delay their retirement, return to work or never retire at all

For three years in a row, the Netherlands has topped the list of the world’s best pension schemes.

Its retirement income system uses a flat-rate public pension and a semi-mandatory occupational pension linked to earnings and industrial agreements.

Most of the country’s employees are members of these occupational defined benefit plans.

Denmark, which has a public basic pension scheme, a supplementary pension benefit tied to income, a fully funded defined contribution plan and mandatory occupational schemes, came a close second in the list of countries with the best pensions.

Israel, whose retirement income system is comprised of a universal state pension and private pensions with compulsory employee and employer contributions, ranked third on the list.

How long will any changes take?

With a general election looming, we are unlikely to see anything significant happen with pensions in the coming months.

When quizzed about the prospect of a long-term savings commission by The Lang Cat’s Tom McPhail, Maynard’s response was, apparently, “Yes, but not now.”

If the polls are to be believed, the Labour Party is heading for a thumping victory, so it is perhaps unsurprising to hear of Maynard’s wait-and-see approach.

 Long-term stability is needed. In fact, it’s never been needed so badly

This poses the next question: how would the future of pensions look under a Labour government?

In its ‘Finance Growth’ report, published in January, the party said it would “review the current state of the pensions and retirement savings landscape” if it came into power.

This, it added, would be “to assess whether the current framework would deliver sustainable retirement incomes”.

It would involve “working with the industry to ensure that pension savers are getting the best possible returns and to identify and address the barriers to schemes investing more into UK productive assets”.

The Labour Party has also indicated support for the current government’s Mansion House reforms and signalled its commitment to retaining the state-pension ‘triple lock’.

For three years in a row, the Netherlands has topped the list of the world’s best pension schemes

If the Conservatives cling to power, their policies could take years to implement. But, whichever government is in charge, questions remain over the long-term future of the triple lock and the state pension.

There has also been talk of radical changes to National Insurance, including scrapping it altogether.

What happens if we don’t act now?

Doing nothing is not an option.

Royal London has warned that the UK could face an even bigger cost-of-living crisis in years to come if we don’t find ways to enable people to increase their pension contributions.

However, the mutual’s director of policy, Jamie Jenkins, acknowledges that “now is not the right time” to do it because of the financial pressures so many people are facing.

Jenkins says that, although any reforms are likely to take many years to implement, “we should start planning now”.

AJ Bell believes that pensions dashboards remain the most obvious solution to connect savers to their pension pots

Oxford Economics director of economic consulting Henry Worthington says research the company has carried out shows that poorer households may find it challenging to afford higher pension contributions.

This poses yet another problem: the pensions ‘gap’ just keeps widening. High earners with more disposable income can pay more into their pensions, while those on a low income can’t afford to increase their contributions.

With the cost-of-living crisis not going away, it’s hard to see that changing soon.

A more stable footing

Regardless of who is in government, two things are obvious in this UK pensions challenge: cross-party collaboration is crucial, and some form of stability is needed.

We haven’t had much of the latter over the past five years or so, both politically and economically.

According to The Lang Cat, last year was the worst on record for outflows from advised platforms, with pensions being ‘hammered’

First there was Brexit, accompanied by the Covid-19 pandemic, and the aftermath of both. Then there was the disastrous Liz Truss/Kwasi Kwarteng Mini-Budget.

We’ve had three prime ministers — two of them unelected — and more Cabinet reshuffles than most people have had hot dinners.

The political revolving door, spinning even faster than usual, has seen pensions ministers coming and going, and policy constantly changing.

Nucleus says this “pension legislation merry-go-round” has eroded the public’s trust in pensions.

It has also called for a stop to the “constant tinkering with pension tax rules”, which it claims is deterring people from engaging with the system.

The success of auto-enrolment has exacerbated the challenge of people losing track of their pensions

With the war in Ukraine still raging, conflict in the Middle East escalating and, potentially, a new UK government in the offing, there doesn’t seem to be much chance of achieving stability in the year ahead either.

Urgent workplace savings reform measures, including increases to contributions, could be proactive first steps towards better pensions for the UK population.

But long-term stability is needed. In fact, it’s never been needed so badly.

Something drastic has to be done to breathe new life into pensions, before it’s too late.

This article featured in the April 2024 edition of MM. 

If you would like to subscribe to the monthly magazine, please click here.

The post Cover story: Pensions are on life support – but how do we save them? appeared first on Money Marketing.

Have you heard about the invention of a pair of glasses to help those with sight loss get a better view of the world?

Researchers at Oxford University have worked on the development of ‘smart glasses’, which give visually impaired people information about their surroundings to assist them in going about their life.

Meanwhile, the other day my dad showed me a video of a man walking along the street while wearing a virtual-reality headset; he was performing hand gestures in the manner of ‘Iron Man’ Tony Stark. Presumably he was deep in the metaverse.

The lack of tech… inconsistencies… delays… it all needs a massive overhaul

The Future Today Institute has predicted that, by 2030, most people will be in the metaverse in some way — whether for work or educational obligations, or to “live the majority of their waking hours ‘jacked in’”.

Tech billionaire Elon Musk has invented and, apparently successfully, installed a chip into a person’s brain that could enable them to control technology using their mind. And we have tech that can photograph parts of the universe we didn’t even know existed. In short, the pace of technological change across the world is astounding.

So why is it that, for certain processes, some financial services providers still make life difficult for clients and advisers by sending out stacks of paperwork that require wet signatures?

Age-old problem

If you want to see the whites of an adviser’s eyes (because those eyes are being rolled), all you have to do is say the words ‘letters of authority’ (LoAs).

This process is a vital part of onboarding clients – and it is also the biggest pain point for most advice firms.

The only way we can solve this is to get together as an industry

“The lack of tech on the matter, inconsistencies of the process by providers, delays by providers, inconsistent info from providers… it needs a massive overhaul,” says HK Wealth Managers owner Garry Hale.

Calton Wealth Management chief executive Tom Ham says his firm is experiencing “big issues” with LoAs, after it bought a firm at the end of last year and recently took on some new advisers.

“We’re still waiting for a stack of policies to transfer so they’re under our agency,” he says. “This is despite the fact that we spoke to each provider and asked what it required before these people even joined the firm.

“That has two effects: the client engages with us, and they want us to give them advice; but we can’t give advice until we know what they’ve got in terms of policies, because the advice may be to leave the money where it is.

“If providers are then taking 12 weeks to get back to us to give us agency and plan information, the client may have lost faith in us by the time they’ve done that.

The #LogYourLoAPain initiative aims to highlight the true cost to advisers and providers of maintaining current practices

“Perhaps more importantly, we may not have been able to give the client advice in a timely manner before a big milestone for them.”

Origo partnered with The Lang Cat to publish a report in the autumn of last year, looking into the extent of the problem.

“Artificial intelligence [AI] is a reality and we all have more computing power in our pocket than that which sent Apollo 11 to the moon,” Lang Cat founder and chief executive Mark Polson wrote in his introduction to the report.

“And yet, here we are. Every financial adviser has a unique entry in a digital register. Every provider does too. Very nearly every client has the means of verifying their identity digitally. And what does our industry do? Demand letters with wet signatures.”

It seems like something that could be a win for everyone if we can solve it

As the report pointed out, the LoA process should be simple: an adviser with the appropriate authority asks for essential information about investment to help build a plan for their new client. But the process is a pain from start to end.

Struggling with admin

The Pension Lab founder Scott Phillips says advisers face a challenge from the moment they ask a new client for their signature in the initial meeting.

“The adviser is almost having to sell to the client that it’s going to take two or three weeks to get this information back, on average, and maybe up to 12 weeks before they can get advice,” he says.

“It’s a real challenge for advisers in terms of managing those expectations and helping consumers to understand why that’s the case in 2024.”

The Consumer Duty is supposed to legislate for improvements. But there needs to be the weight of the industry pushing for a solution

The worst-case scenario is that the adviser could lose a client’s business because, Phillips says, this is a service industry and “it’s just not the service that you would expect, but it’s not the adviser’s fault”.

Back in November 2021, I wrote about my own experience of transferring all my small pension pots into PensionBee — a controversial decision that attracted disapproval from some advisers. The process was straightforward, nonetheless.

I simply put in the details I had about my pensions and PensionBee contacted my old providers to request the transfer.

I was subsequently emailed by three of my old providers — Aegon, Aviva and Penfold — asking me both to verify that this was what I wanted to do and to sign electronic documents.

And that was it — all the money from those pensions now in one app.

More providers are making a difference, but still the vast majority are causing a painful process for advice firms

‘Wow, that was easy,’ I thought — until it came to transferring my final pension pot.

I did not name the provider in my original article. But, following publication, I got a quote from a spokesperson, so now I guess I can: Virgin Money.

I received at least five letters from Virgin Money, all telling me I needed to verify my home address, to which I responded.

I then received another letter, informing me I had to send two forms of identification. This meant taking a scanned and printed copy of my driver’s licence to the Post Office and paying £13 to get a verification stamp.

I was also told I needed to send another form of identification: a paper utility bill, not a bill downloaded from online. I had opted for paperless statements for everything, so this proved a problem.

In response to my asking why it had taken so long to process my transfer, the Virgin Money spokesperson told me: “We have a transformation programme under our joint venture [JV] with Abrdn that will deliver significant improvements for customers going forward, including for those making pension transfers.”

It’s not good for consumers, it’s not good for advisers and it can’t be good for providers

This was a few years ago and the spokesperson never responded to my question about what improvements had been made since the JV, which happened in 2019.

Just recently, though, Virgin Money announced it had agreed to buy Abrdn’s stake in the JV — which launched last year as Virgin Money Investments — for £20m.

This whole story sounds ridiculous, doesn’t it? From my conversations with advisers, however, it is not unusual.

Provider inconsistency

There is a lot of talk about how advisers can use — and are using — tech to help drive efficiency into their business (AI being the buzzword of the moment).

But, as many point out, there is only so much that advisers can do. Some parts of the client-onboarding process are simply out of their hands.

The time it takes to process LoAs is not the only issue. The variability in processes of different providers is also a key pain point.

We’re still waiting for a stack of policies to transfer so they’re under our agency

A support-services firm for advisers, called Intuitive, publishes a regular document with updated information on what each provider requires for submission of LoAs. It serves to highlight some of these discrepancies.

The Origo and Lang Cat report says the LoA process is incredibly inconsistent, and has been for many years, which leads to “significant time wasted by firms”.

Specifically, it says: “It’s difficult to know where to send the requests to, in which format, and even if both of those simple tasks are accomplished there’s the processing time to add to that.”

To explain just what is wrong with the current state of the process, Origo chief executive Anthony Rafferty suggests imagining you’ve just been to your GP, who says you need to see a specialist consultant.

The problem is that every consultant refuses to accept a referral from any GP without the GP in question identifying themselves. Each specialist consultant also has their own standard for what constitutes an acceptable form of identification.

Ultimately, these providers are suffering reputational damage here as a result

“Some check the GP Register or phone back to confirm,” says Rafferty. “Some need online checks. Some need the patient to furnish a wet signature. Some change their mind depending on which administrator in the consultant’s office is working that day. And none of them publish what it is they want, so it’s a constant guessing game.

“Even if you get it right, the ID step can take months; months during which time the patient could well have — not to put too fine a point on it — died.”

The situation with LoAs is similar: some providers require an electronic signature; some require a wet signature; and some require the LoA to be sent via a portal. With this variety of routes, there’s no standardisation.

“Electronic signatures are legally recognised in the UK,” Phillips points out. “So providers, in theory, should be accepting them. But that’s not necessarily the case.”

Same old excuse

The reason that providers give for delays to the process, almost without fail, is that they are ‘experiencing unexpectedly high volumes of enquiries’.

This is an affliction that seems to have gripped providers in many sectors since the Covid-19 pandemic. But there comes a point when high volumes are no longer ‘unexpected’ but are the norm, and perhaps providers need to hire more staff or do whatever is necessary to make high volumes genuinely unexpected again.

The LoA process is incredibly inconsistent, and has been for many years, which leads to significant time wasted by firms

As a side note, money expert Martin Lewis has recently launched a campaign against ‘Sorry for unusually high call volumes’ recorded messages, which he believes could be breaching the Financial Conduct Authority’s Consumer Duty rules.

Some advisers suspect that these messages may also be a play to keep money within the business. I am not suggesting that is the case for most providers. But, if it is, this is a flawed line of thinking.

The Origo and Lang Cat report suggests that advisers will be, at best, reticent to place new business with providers they deem to be slowing down the LoA process.

“Ultimately, these providers are suffering reputational damage here as a result, as well as being at risk of falling foul of the Consumer Duty cross-cutting rules identified in the introduction,” it says.

It is also, obviously, the obligation of providers to adhere to the Consumer Duty.

Electronic signatures are legally recognised in the UK. So providers, in theory, should be accepting them. But that’s not necessarily the case.

Despite LoAs being the bane of most advisers’ existence, not much seems to have changed in the past few years. You have only to look through the archives of Money Marketing to see that the same old issues keep cropping up.

NextWealth published a report in 2020 detailing some of the pain points faced by advisers in the LoA process. It listed some of the main issues:

– The information requested is not standardised. Several different letters may need to be prepared for a single client, requiring significant additional time for rework.

– The submission format varies from provider to provider, for example through a portal, secure email or post.

– For some providers there is no single receiving point for an LoA and, therefore, the advice firm must elicit the correct team’s email address, which adds time and confusion.

– The LoAs must be chased through each provider system to ensure deadlines are met.

– Sensitive client information is being transmitted in an unsecure way, exposing the advice firm to cybersecurity risks.

The NextWealth report suggested most advice firms had had to build in workarounds and extra process steps, such as phone calls before each submission and more telephone checks to follow an LoA through the system.

This sounds like something that was written this year, not four years ago.

It’s a real challenge for advisers in terms of managing clients’ expectations

NextWealth client delivery manager Hannah Wemyss says the consultancy is hearing pretty much the same story from advisers today.

“We have heard that more providers are making a difference, but still the vast majority are causing a painful process for advice firms,” she says.

Plan of action

This is clearly a massive, business-critical problem and has been for a long time. But what can be done about it?

The resounding answer is standardisation. And, to get standardisation, we need more collaboration.

This is a service industry and it’s just not the service that you would expect – but it’s not the adviser’s fault

“It’s perhaps understandable, given the breadth of providers in the UK that work with this process, and the often-siloed pockets that exist as a result, that the impacts haven’t been highlighted as starkly as they have before this paper has been published,” says the Origo and Lang Cat report.

“To that end, we’re proud to have been able to shine a bright, uncomfortable light on the results of some providers’ practices.”

The report does point out that, of course, not every provider is as bad, or as good, as each other.

But, it adds, “we think we can all agree we’re much further away from an ‘acceptable’ state – let alone ‘good’ — than we should be”.

Phillips says: “The only way I think we can solve this is to get together as an industry.

Very nearly every client has the means of verifying their identity digitally. And what does our industry do? Demand letters with wet signatures

“You’ve got some tailwinds, such as the Consumer Duty, which is supposed to legislate for improvements. But there needs to be the weight of the industry pushing for a solution.”

In January this year, the Pension Lab launched a campaign called #LogYourLoAPain to quantify the scale of the problem. Together with Beyond Encryption, Criterion Tec and Punter Southall, the fintech boutique is calling on every UK advice and financial planning firm to record the number of letters they deal with, to make the case for a modern-day alternative that can “transform the painful process”.

On the launch of the campaign, Criterion Tec managing director Billy Burnside said the LoA process had been a “persistent source” of industry frustration for a long time and needed tackling.

Phillips says: “The #LogYourLoAPain initiative aims to highlight the true cost to advisers and providers of maintaining current practices, and to enable firms to see the benefits of working collaboratively and to identify solutions to improve this lengthy and outdated process.

If providers are taking 12 weeks to get back to us, the client may have lost faith in us by then

“First, we’re trying to get everyone together to quantify the numbers, then play that back to the industry and the regulators. Then we want to try and galvanise this body of support to push for a solution, collectively.

“It’s not good for consumers, it’s not good for advisers and it can’t be good for providers. It seems like something that could be a win for everyone if we can solve it.”

My experience with transferring one of my pension pots was a bit irksome. I can only imagine how annoying these slow processes are for advisers, who face this issue daily and on a much larger scale. In an era where technology has come so far, the industry should be doing better than wet signatures and stacks of paper.

The title of the Origo and Lang Cat report sums it up perfectly: Just Fix It Already.

This article featured in the March 2024 edition of MM. 

If you would like to subscribe to the monthly magazine, please click here.

The post Cover story: Why letters of authority are stuck in the past appeared first on Money Marketing.

If 2023 taught us anything, it’s that we live in uncertain times. Shifts of all kinds constantly threaten to overturn past orthodoxies, and the sheer pace of change can be either thrilling or terrifying (or often both).

When it comes to the financial advice sector, these changes pose a unique challenge. How can advisers properly advise when the future is so hard to predict? And how can clients plan with any kind of confidence when the world around us so often undermines that confidence?

Unanswerable questions, you may say. Well, yes and no. While peering into a crystal ball invariably makes you look foolish, it’s still useful to step outside the daily news cycle and look more closely at the factors that will drive the news cycles of tomorrow.

How will advice firms react to the growing burden of costs in economically uncertain times?

With that in mind, Money Marketing wanted to answer a simple question: what are the key trends that will shape the future of financial advice?

To answer it, we looked at five areas: global politics, technology, demographics, regulation and costs. Each of these areas, in turn, raises its own set of questions.

How will global financial markets react to increasing levels of instability, from Gaza and Ukraine to Yemen and China?

How will the rise of adviser tech and artificial intelligence (AI) change how firms operate, and indeed the adviser-client relationship?

How will advisers communicate with the next generation of clients, and where are the advisers of the future coming from?

How can advisers properly advise when the future is so hard to predict?

How will a growing tranche of Financial Conduct Authority regulations, including but not confined to the Consumer Duty, affect the advice landscape?

Finally, how will advice firms react to the growing burden of costs in economically uncertain times?

The answers to these questions and others will define the nature of financial advice for years to come. They will also give an indication of what firms and individual advisers should be keeping an eye on if they want to survive the coming storms.

So, while we can’t provide advisers with a crystal ball, we hope this set of features contains plenty of practical wisdom. You can’t say you weren’t warned….

Global politics

Tom Browne

It’s a cliché that, when the US sneezes, the world catches a cold — and, frankly, it’s due an update.

After all, in an interconnected world, snuffles big and small across multiple regions are liable to have an impact, and predicting where these may occur is increasingly difficult.

After a turbulent couple of years — when the effects of Brexit, Covid-19, the war in Ukraine and domestic upheaval dragged the UK to the brink of a recession — the hope across the advice sector is for a period of calm. Instead, the word on everyone’s lips is ‘uncertainty’.

Politicians, investors and voters will likely be watching and waiting on events before making any major decisions

At a recent appearance at the Treasury select committee, the Bank of England’s Carolyn Wilkins said: “There are a lot of risks… coming from the global economy [that] could create an uptick in inflation and therefore the need for higher interest rates, but also a slowdown in economic activity.

“I think that combination, given the vulnerabilities… would be stressful from a financial stability point of view.”

From that perspective the US still looms large, not least because of the November 2024 presidential election. The reaction of the markets to another Donald Trump term is hard to gauge, but his crushing win in last month’s Iowa caucus has certainly increased its likelihood.

The question, then, is: what might the impact of this be on the Ukraine conflict? Russia’s invasion in 2022 has already sent food and energy prices soaring and exacerbated tensions with the EU, the UN and Nato. With no end in sight, the possibility that an incoming Republican administration might withdraw support for Ukraine is a major worry for Europe in particular.

The UK economy avoided a recession in 2023, but the threat hasn’t gone away

Of course, the US election is only one of at least 64 worldwide in 2024, many with potential for upheaval. The recent election of William Lai in Taiwan, for example, has done little to calm tensions with China, renewing concerns that it could try to annex the territory — the source of 92% of the world’s semiconductors.

And, in places where fighting has already broken out, the picture is even more worrying.

At the start of 2023, few observers would have predicted the explosion of violence in Israel and Gaza. Should this spark a wider conflict within the oil-rich region, the economic fallout could be devastating. Already, attacks by Iranian-backed Houthi rebels on Red Sea shipping have disrupted vital global trade routes, adding to inflationary pressures and provoking counter-strikes by the US and the UK.

The UK economy, for its part, avoided a recession in 2023, but the threat hasn’t gone away. A general election now looks likely in October or November, with the Conservative government hoping that an economic recovery will give it some kind of election platform.

In an interconnected world, snuffles big and small across multiple regions are liable to have an impact

Attention thus shifts to the Spring Budget on 6 March and the dogs that failed to bark in last November’s Autumn Statement, such as changes to inheritance tax and income-tax thresholds.

Whatever happens, a Labour victory in the election now looks inevitable.

But, while the markets are unlikely to be spooked by a centrist Labour government, the party will still inherit a country with sluggish growth, high interest rates, inflation well above the Bank of England’s target and an ongoing cost-of-living crisis.

Given such an environment, politicians, investors and voters will likely be watching and waiting on events before making any major decisions.

It could be a long time before uncertainty turns to decisiveness.

Technology

Momodou Musa Touray

If you speak to veterans of the advice sector, they will tell you how “primitive” the system was during the glory days in the 1980s. All they had then were paper spreadsheets and telephones.

Then the sector pivoted away from analogue to digital.

The early stages of adviser tech were rudimentary. Online access for clients was narrow and limited. This affected overall client engagement and outcomes.

Thankfully, the sector moved on. Technology is now an integral part of the advice process. Every facet of the value chain — from client onboarding to cashflow planning — has been streamlined, which has improved the adviser-client relationship.

Firms are now engaging with and managing the huge amount of data involved in the financial-planning process

But, as we all know, change is constant. AI, automation and blockchain are all set to transform the advice landscape.

And yet, the sector is playing catch-up. Legacy tech persists in some areas, which is preventing advice firms from growing their business.

The rate of tech adoption differs among advice firms. Software provider Intelliflo says tech adoption is the “make-or-break factor” for future success. Its 2023 eAdviser Index shows that advice firms that had adopted tech outperformed their peers.

The index, which analyses nearly four billion interactions within Intelliflo Office over the past year, breaks down advice firms into four cohorts based on their level of tech adoption. These cohorts are ‘explorers’, ‘adopters’, ‘embracers’ and ‘champions’.

The explorers are the lowest adopters of tech while the champions are the highest.

One in five UK financial advisers believes AI will replace the work they do

The champions were shown to have generated 54% more revenue per adviser than their explorer counterparts had.

They also generated 76% more ongoing revenue per adviser. The difference in assets under advice per adviser was 64%.

The benefits of embracing new technology are therefore clear. It’s profitable for tech-savvy firms and beneficial to their clients. It’s a win-win situation.

AI, which has shown great potential, is regarded by many as a threat. The latest research from CoreData shows that one in five UK financial advisers believes AI will replace the work they do.

But the same study finds that 45% of advisers think AI will help them to serve clients more efficiently, while almost a third (31%) think it will reduce advice fees.

“AI offers many opportunities for advice firms, including automating tasks, managing data, assessing risk and complying with regulations,” says CoreData managing director UK and US Rory Wilson.

Legacy tech persists in some areas, which is preventing advice firms from growing their business

“This could allow advisers to spend more time with clients and put into use those essential soft skills, including empathy and reassurance, which cannot be replicated by technology.”

Some firms are already incorporating AI. Calton Wealth Management has teamed up with advice tech firm Ningi to launch AI Copilot, which will automate part of the planning process and enable advisers to focus on human interactions.

“A human generating and sending out a client agreement does not add any value; a human transcribing notes onto a back-office system does not add any value; a human typing out a letter of authority doesn’t add value,” Calton founder and chief executive Tom Ham told Money Marketing recently.

Finally, there’s data integration. Data makes up a large part of the Consumer Duty, which came into force last July.

Firms are now engaging with and managing the huge amount of data involved in the financial-planning process.

However, the lack of a sector-wide central hub, with data flowing seamlessly in and out, remains a big challenge.

Demographics

Lois Vallely

Generation Alpha is getting older. The more steps this cohort takes towards adulthood, the closer its members get to becoming potential advice clients.

The oldest are still only tweens, but advisers hoping to be around in 10 years’ time would do well to consider how they will serve the next generation of clients.

The oldest in the generation before Alpha — known as Gen Z — are in their mid-20s, which means many of them are beginning to plan for their financial future.

To reach younger clients, advisers should be willing to have a social-media presence

Just as with Millennials 10 years ago, Gen Z is a fountain of opportunity for advisers. But, for this generation of digital natives who have never known a world without the internet, advisers must be prepared to work in a different way. To reach a younger audience, they should be willing to embrace tech and have a social-media presence.

Some potential Gen Z clients may not feel they need full-fat advice just yet and will opt for guidance instead. The deadline for feedback on the FCA’s advice-guidance boundary review is at the end of this month.

Younger clients are also more likely to care about sustainability issues and where their money is being invested. As such, it has never been more important for advisers to gain an understanding of what their clients want from their investments.

Financial wellbeing, too, is creeping up the agenda. As taboos associated with talking about one’s feelings fade, people are becoming more attuned to their mental health. Since financial wellbeing has a big impact here, advisers can aim to understand more about their clients’ financial desires and where they come from.

There has been a lot of dealmaking and aggregation of firms by several big spenders

Of course, the next generation also brings in new financial advisers (FAs), albeit we need more people training as FAs to combat the predicted adviser gap, which will otherwise widen as three-quarters of advisers reach retirement age in five to 10 years.

Until now, adviser numbers have been on the rise, according to the latest NextWealth figures. However, at the Chartered Institute for Securities & Investment’s annual conference last year, Financial Planner Life founder Sam Oakes warned that 20,250 advisers were expected to retire by 2033.

Meanwhile, the consolidation train continues to chug along, with a huge number of deals announced in 2023 and many more in the pipeline.

A big theme developing in the M&A advice market is the difference between genuine consolidation and aggregation.

There has been a lot of dealmaking and aggregation of firms by several big spenders. Platform One chief executive Alex Cowan-Sanluis predicts a “real divide” between those combining businesses efficiently using technology and those running a disparate group of companies.

The more steps Generation Alpha takes towards adulthood, the closer its members get to becoming potential advice clients

“They are not actually consolidating by utilising technology or providing a central investment proposition, making real efficiencies and driving down costs,” he says.

“They’re just aggregating advice businesses and building pure scale in terms of client numbers and assets. That’s an expensive exercise in this period of high interest rates.”

He warns that many private-equity backed consolidators have not budgeted for tech costs, an oversight that could “come back to bite”. On top of this, as more advice firms get swallowed up, the pool of choice for clients shrinks.

Encouragingly, another trend that looks set to continue in 2024 is the launch of start-up advice firms. These should bring much-needed innovation into the space and help close the advice gap — if business owners are realistic and sensible.

Regulation

Dan Cooper

Just over a decade ago, the introduction of the Retail Distribution Review (RDR) transformed the way financial advice was regulated. Last summer, the introduction of the Consumer Duty redefined the boundaries again.

Fast forward to 2024 and the pressure on advice firms to comply with regulatory changes has never been greater. A flurry of activity from the FCA in the last quarter of 2023 saw a raft of new proposals.

Everything from ESG (environmental, social and governance), digital assets, the use of AI and financial crime to operational resilience will be under the spotlight.

Personal investment firms will have to set aside capital to cover costs of compensation

This is also the year that the blurred boundaries between advice and guidance should come sharply into focus. The FCA has come up with proposals to try and close the advice gap and further clarify the difference between targeted support and simplified advice.

The regulator is still trying to work out what should and should not be in the scope of simplified advice, and how firms can charge for it.

Then there’s targeted support. The FCA anticipates this will appeal to life insurers and platforms, as they can use customer data and product knowledge to provide greater support to consumers than is currently possible under guidance.

However, targeted support is different from advice. As the FCA says, “It is not clear such a service could be provided by a financial advice firm.”

All this is new territory and leaves a lot of questions still unanswered.

There are fears that this perfect storm could put additional pressure on smaller advice firms

The regulator also plans to introduce measures to improve the trust in, and transparency of, sustainable investment products, and to minimise greenwashing. This is designed to make sure sustainability-related claims are fair, while product labels help investors understand what their money is being used for.

There are also naming and marketing requirements, so products cannot be described as sustainable when they are not.

In addition, we should find out more about how: 1) the FCA intends to regulate critical third parties, including AI services, for the UK financial sector, and 2) it will crack down on firms that keep some of the interest on customers’ cash balances for themselves while also charging a fee to hold the cash.

The watchdog is concerned that this latter practice, known as ‘double dipping’, may not provide fair value.

Then there are the results of the regulator’s thematic review of retirement income advice, which was undertaken to explore how advice firms were delivering retirement income advice and to assess the quality of outcomes consumers were getting.

The pressure on advice firms to comply with regulatory changes has never been greater

Finally, there’s the outcome of the FCA’s ‘polluter pays’ consultation. Under the proposals, personal investment firms will be required to set aside capital so they can cover compensation costs. The regulator says this will ensure “the polluter pays” when consumers are harmed.

Keeping on top of these regulations would be a challenge in normal circumstances. With geopolitical tensions and economic turmoil added to the mix, it poses an even greater obstacle. There are fears that this perfect storm could put additional pressure on smaller advice firms already struggling with the cost of implementing Consumer Duty regulations.

Whether this leads to the ‘little fish’ jumping out of the pond and exiting the market, or to the consolidation trend continuing as the big fish snap them up, only time will tell.

Costs

Darius McQuaid

Last year was tough on advice firms and they can expect little respite in 2024 as regulation and interest rates continue to put pressure on costs.

The Consumer Prices Index inflation rate of 4% is still well above the Bank of England’s 2% target, following a surprise rise of 0.1 percentage points in December. Bringing this down comes at a cost. High inflation last year forced the Bank to hike the base rate 14 times in a row, taking it to 5.25% from 0.1% in December 2021.

The Consumer Duty has put downward pressure on fees

This is something that impacts every consumer and business, and IFAs are no exception. But, despite rising interest rates creating a tougher environment for advisers, most commentators insist they have kept the burden off clients.

Succession Wealth corporate director Paul Morrish says that, when cost pressures build up in IFA firms, the client is the last person to pay for an increase without an improvement in the proposition.

But it is not just inflation and interest rates creating challenges. The rollout of the Consumer Duty last July has put downward pressure on the fees that firms can charge from clients.

This had a clear influence on the decision by St James’s Place to scrap its controversial exit fees in October. And a similar impact can be seen across the sector.

According to a report by NextWealth last year, the total client cost fell to 1.75% in 2023, having remained at about 2% for several years. The report also pointed to a series of regulatory interventions that had put a focus on fee disclosure — in particular the RDR and Mifid II.

However, the FCA is not yet content with the behaviour of many wealth managers.

In a damning ‘Dear CEO’ letter published in October last year, the regulator scolded them for failing to meet their obligation to deliver good consumer outcomes.

Despite rising interest rates creating a tougher environment for advisers, most commentators insist they have kept the burden off clients

One pertinent point was about price and value. The letter said the regulator continued to see firms “charging for services which are not delivered” — such as ongoing advice — overtrading on portfolios to generate high transaction fees, and providing a product or service that did not align with consumer needs.

In addition, the FCA expressed concern that firms were “not consistently providing clear disclosures on their fees or charging structures”.

Another trend that looks set to continue is the pace of consolidation, with numerous smaller consolidators — backed by private-equity firms — having entered the market.

Dyer Baade co-founder Stuart Dyer says these smaller consolidators are more willing to buy smaller IFA firms, while Gunner & Co managing director Louise Jeffreys believes that even bigger consolidators will now consider purchasing smaller firms they had previously “turned their backs on”.

Advice firms can expect little respite in 2024 as regulation and interest rates continue to put pressure on costs

NextWealth’s report found that 16% of advice business owners were looking to sell their firm or exit the market in the next 18 months; this was up 5 percentage points year on year. It also revealed that 48% had been approached about an acquisition.

Indeed, 2024 was only just under way when consolidators such as Perspective, Söderberg and Succession made their first acquisitions, and Morrish believes the abundance of private equity will lower the price of IFA firms looking to sell.

However, he does have concerns that these businesses may consider going restricted or semi-restricted under the pressure of rising costs.

While it’s clear that IFAs are still vital for clients, it’s debatable how many will be able to hold on to their independence.

This article featured in the February 2024 edition of MM. 

If you would like to subscribe to the monthly magazine, please click here.

The post Cover story: Making trends and influencing people appeared first on Money Marketing.

Here, we look the issues behind the headlines in 2023.

It’s not easy being green

The FCA’s proposed measures to clamp down on ‘greenwashing’ have been well received – but is the industry doing enough to tackle the issue?

Scales of justice

When will British Steel workers ever get their money for missold pensions? Compensation should be close at hand, but FCA redress methodology is being contested as legal challenges loom.

Civil war

Civil war broke out between the PFS and the CII after the Christmas coup of 2022 saw tensions reach boiling point. Will the bloodshed continue?

Hybrid advice

Vanguard tried – and failed – to make its low-cost advice model work. So what is the answer when it comes to providing affordable, hybrid advice?

Big tech monster

There’s a big tech monster lurking in the dark, preparing to pounce. But how well is the industry placed to deal with the challenge? And can it adapt?

Winding road to recovery

The after-effects of Covid caused considerable harm to both individuals and the economy, with a record number of workers on long-term sick leave. Could the protection industry be doing more?

Security alarm

The financial sector faced a considerable surge in ransomware attacks in 2022, with a total of 120 incidents reported. In 2023, it is clear advisers still need to be cyber hackers.

Extra homework

Some networks welcomed the changes to the AR regime — but others say they were following the rules already and now must spend their time proving it.

Hold or fold?

It is an ongoing game of pensions poker over the triple lock. The only question is, should the government hold, or fold their hand?

No way out?

St James’ Place announced plans to scrap its controversial exit fees in 2025 – but did the FCA’s Consumer Duty fair value rules leave them with no way out?

Friend or foe?

The PFS and CII appear to have kissed and made up following their spat. Or are they just pretending to be friends?

The post Money Marketing’s cover features of 2023 appeared first on Money Marketing.

When I was in primary school, I had two best friends. They were both called Sophie. And they hated each other.

There would be periods when they had made friends and we could hang out as a group.

Those times were fun, but I always had a sense of impending doom.  Soon, they would fall out over nothing again and I would be stuck in the middle.

The rift between the Chartered Insurance Institute (CII) and the Personal Finance Society (PFS) is bringing back bad memories of those times.

It came to light in October that the PFS had spent £850,000 on “expert legal and financial advice” during its spat with the CII in the second half of last year.

From the CII’s point of view, it is all fine. It has put a majority of its employees on the board

“The PFS board brought in expert, external consultants to support the company directors’ legal, financial and communications efforts during their discussions with the CII on a future operating model of the company within the group,” the PFS stated in its annual financial report for 2022.

Much of the rest of this spending, it said, had been to enable the body to have its own communications function during a “sensitive and challenging” time.

Because the CII and PFS usually share a press office, the PFS hired an external agency — DRD Partnership — to handle its PR during this period. Normal service has now resumed.

“The complex nature of these discussions required expertise to enable the board to navigate new territory,” the PFS explained.

The CII should not underestimate the strength of feeling of the silent majority

“The decision to engage external consultants ensured the board received the best possible advice to support the effective discharge of their director responsibilities throughout this process.”

Further down in the report, listed under administration expenses, is £1.5m spent on “fees and services”. This figure compares with about £400,000 the previous year. It is not clear from the document exactly where the £1.5m was spent.

I asked the CII press office and was told the PFS had “nothing to add” to what was in the report.

Christmas Coup

The fallout, which is often referred to as the Christmas Coup, had been brewing for months.

It came to a head late last year when the CII Group announced it would appoint a majority of directors to the PFS board after “independent mediation failed”.

The self-inflicted saga created by the CII may have a deeper and longer-lasting impact than its management and board could have possibly imagined

The CII insisted at the time that a series of “serious governance risks” at the PFS had left it with “no alternative” but to step in. Among the risks listed were a “lack of collective decision making” by the PFS board and a failure to act in line with the articles of association approved by PFS members.

The CII’s action was met with disdain from PFS members and directors. PFS president Caroline Stuart said the decision by the CII board had come as a “huge shock”.

She stood down from the role with immediate effect on 5 January, stating that the “untold pressure” on the PFS board was “to the detriment” of her health.

Former PFS presidents Sarah Lord and Garry Hale also condemned the CII for its “aggressive” takeover of the PFS board, calling it a “deeply cynical move”.

Calmer times

After the furore last Christmas, everything went quiet for a while.

The next time I wrote about the subject, in July this year, it was to report that the PFS was recruiting two full members to serve as directors on its board.

I’m quite surprised a business of our size has sat on these funds for so long

This board is now made up of just three PFS member directors: Anthony Ward, Carla Brown and Daniel Williams. There are seven directors from the CII — Andy Briscoe, Catharine Seddon, Christine Elliott, Edward Grant, Neil Buckley, Neil Watts and Sarah Howe — and one lay director: Elizabeth Bastin.

Regardless of their roots, all these board members are under a legal obligation to act in the best interests of PFS members. But I would argue that ‘best interests’ is a subjective and movable term.

I met CII Group chief executive Alan Vallance in October and reported his belief that the two bodies were prepared to put the past behind them. In fact, most of our conversation was about the CII’s plans and how it and the PFS were going to work together more closely.

Vallance said recent discussions between the two bodies had been “very constructive”.

“That’s something we’ve relayed to our members directly,” he added.

Both the PFS and CII have a lot to offer the respective personal finance and insurance sectors, and should be leading the way

The boards have seen “a lot of the issues recognised” and some “constructive proposals formed”.

Furthermore, he said, “The CII Group is much more reassured about the PFS, which is really positive.”

Vallance has since announced he is leaving next spring to take up a similar role at the Institute of Chartered Accountants in England and Wales. That is less than two years since he became CEO of the CII in August 2022.

Before joining the CII, he had spent seven years at the Royal Institute of British Architects, so it is not as if he hops between different roles as a rule.

Under the carpet

There are PFS members and former members who are concerned that some of the issues that sparked the Christmas Coup have been brushed under the carpet.

Vallance and PFS interim chief executive Don MacIntyre sent out a joint statement, saying: “We have stated clearly and repeatedly to members over recent months that the CII and PFS are now moving forwards together.

I completely respect the 300 people who have signed Alasdair’s petition. But I cannot, as CEO, listen to only 300

“We understand that some members may still have concerns and we are listening carefully. All our time, energy and resources are now fully invested in building a stronger future and delivering exceptional services for our PFS and CII members.”

Former PFS member director Vanessa Barnes says: “From [the CII’s] point of view, it is all fine. It has put in a majority of its employees. The PFS, previously, has always been the majority of member directors, so the board was led by the profession itself. Now the CII has parachuted in a number of appointees, who it pays to control the board.”

Barnes was one of the member directors who spoke out during the Christmas Coup. She stepped down from the board, along with fellow member director Gordon Wilson, in June this year.

I don’t understand why people aren’t more bothered that basically £10m of their money has been taken

“During the [PFS] annual general meeting [AGM — in September], the so-called independent chair was talking about having only just put his feet under the table,” she says.

“The moment Gordon and I resigned, they appointed these new people. And, within 48 hours, they’d had a meeting and approved the accounts.

“How can you say a month later that you don’t know what’s going on, but you were able to approve the accounts?”

Barnes says what usually happens is the story is “twisted into, ‘What’s good for the CII is good for the PFS’”, because the PFS is dependent on the CII.

“Using that as an excuse to get around your fiduciary responsibilities is not good, in my opinion,” she says.

Adviser concern

Advisers have expressed concern that the CII may still look to deregister the PFS.

Former PFS CEO Keith Richards points out that the CII has attempted to wind up the PFS as a legal entity on three occasions, in 2017, 2019 and 2021, which he says was “without logic or plausible explanation”.

The news of these attempts was “understandably met with shock and bewilderment by the volunteer member network, members and the wider market”.

Richards continues: “The flooding of the PFS board with CII-appointed directors to gain a majority control is seen by many as a cynical strategy to take away the independence the PFS once enjoyed. This outcome has further impacted trust, with some looking to transition to other professional bodies as a direct consequence.

The insurance sector is not necessarily in decline, but it’s the skilled insurance broker bit that is dwindling

“The CII has come under criticism from not only the personal finance membership, of course. [There were] challenges faced from the insurance sector at its last two AGMs. So, the issues are wider than the independence of the PFS.”

There have also been accusations that the CII is after the PFS’s money.

In January, Barnes wrote an email to CII Group chair Helen Phillips, asking whether the intention of the CII was to take control of PFS reserves. She also acknowledged the CII’s commitment to not deregister the PFS.

In a LinkedIn post at the end of last year, CII director of communications Chris Shadforth insisted that the decision of the CII Group board to appoint additional directors to the PFS would not result in cash being moved from the PFS to any other company within the institute’s group of companies in any way different from then.

“Money already flows between the companies in order to pay for the services PFS members receive from the group,” he said.

Chartered financial planner Alasdair Walker used to be an active member of the PFS, but since early 2022 he has stepped back from duties, including chairing the body’s Expert Practitioner Panel.

How can you say you don’t know what’s going on, but you were able to approve the accounts?

In October, he reignited his campaign to “save” the organisation and urged the board to “act in the best interests of members”. He had launched the ‘Our PFS’ campaign  when tensions erupted at the end of last year.

Walker believes the CII is running out of money and is, therefore, leaning on the PFS.

“The insurance sector is not necessarily in decline, but it’s the skilled insurance broker bit [that is dwindling] — i.e. the people who pay the CII their membership fees. It just doesn’t exist as much anymore,” he says.

Because of this ‘de-skilling’ of the sector, insurance membership has dropped, while personal finance membership looks to have remained steady at around 40,000.

Walker is not the only one who feels that way. He wrote to the PFS board in October, setting out his concerns and asking a series of questions about what he felt was the PFS’s lack of autonomy, plus the fact that PFS member funds were still being held in a CII-controlled account.

The PFS, previously, has always been the majority of member directors, so the board was led by the profession itself

He also sent an open letter to PFS members that, on last count, had received around 300 signatures.

“I don’t understand why people aren’t more bothered that basically £10m of their money, which they have contributed to a non-profit professional body, has been taken,” says Walker.

“Nobody seems to care.”

Where’s the money?

In September last year, Money Marketing reported on concerns from PFS members that £10m was still being held by the CII. Prior to this, the CII was holding £19.97m on behalf of the PFS.

A spokesperson for the CII told Money Marketing at the time that the CII had transferred £10m of this outstanding balance to the PFS in August.

This was confirmed by then PFS president Sarah Lord at the PFS’s AGM in September 2022.

We understand that some members may still have concerns and we are listening carefully

But it is not entirely clear where the remaining £10m has gone.

In its annual report for 2022, the CII says the “amount owed to subsidiary undertakings” now stands at £11.8m, bearing in mind that the PFS is not the CII’s only subsidiary.

Responding to the question of whether £10m is still being held in a CII account, MacIntyre says, intriguingly, that this statement is both correct and incorrect.

“When I arrived, there was initially £10.2m in an account in the name of PFS, and that was transferred,” he tells Money Marketing.

He says he did not feel comfortable with a large sum of money sitting in a single account, so he put it into an investment. It grew to £10.7m.

“In addition, we have what’s known as the intercompany balance,” he continues.

“That is put into a number of accounts because the CII has an active treasury policy.”

MacIntyre insists he would want an intercompany balance of at least £5m, which allows him to “balance cashflow” as the business grows. He wants to ensure the funds are set aside for things such as regional events and annual conferences.

We have stated clearly and repeatedly to members over recent months that the CII and PFS are now moving forwards together

What is more, the CII has an outstanding issue with HM Revenue & Customs (HMRC), based on previous tax years.

“That is an exposure of £2.5m. We have to have that set aside in case HMRC says we still owe that number.”

He insists the intercompany balance is reported to the board on a monthly basis.

“At no stage does the board not know exactly where these funds are.”

The PFS and the CII are currently “looking at moving [the money]” so it sits in PFS accounts. But, until there is a “robust treasury policy”, endorsed by the board, he is not willing to move additional funds into a “stagnant account”.

MacIntyre also says that, as the PFS looks at getting a more robust business plan and a clearer strategy, and at improving its annual report, there are a number of things he hopes to do that will mean “stronger transparency to the members”.

The complex nature of these discussions required expertise to enable the board to navigate new territory

He wants to start spending the funds for the benefit of PFS members.

“I’m quite surprised a business of our size has sat on these funds for so long.”

He also wants to speak more to members and find out what they want from the professional body.

“I completely respect the 300 people who have signed Alasdair’s petition. But I cannot, as CEO, listen to only 300. The systems and structures we have in place at the moment aren’t good enough for me to speak to all of our members.”

He wants to improve this.

Lack of trust

Sadly, everything that has happened publicly in the past year, and behind the scenes in the years before, has doubtless affected trust in the CII and, to an extent, the PFS.

The decision to engage external consultants ensured the board received the best possible advice

Richards believes the CII is potentially facing a “deep-rooted” lack of trust among the PFS membership, “primarily of its own making”. He thinks the body is “out of touch” with the strength of feeling across the membership and “evident consequences”.

He says: “The self-inflicted saga created by the CII may have a deeper and longer-lasting impact than its management and board could have possibly imagined or fully understood.

“Unfortunately, the CII is generally seen as demonstrating a lack of good conduct, with little acknowledgement shown for the impact of its actions, exam and IT-system issues on members, despite regular criticism on social media and various trade-press articles over the past three years.

The CII Group is much more reassured about the PFS, which is really positive

“Couple this with the relationship issues created by the CII board with the PFS member director board, as well as failed mediation costing both organisations several million pounds in external fees.

“Then there are the attempts to control the narrative via PR, trying to discredit volunteer member directors of the PFS in public, which ultimately led to the resignation of the PFS president, Caroline Stuart.”

Richards warns that the CII “should not underestimate the strength of feeling of the silent majority”, or it will “continue to face a deep-rooted erosion of confidence and trust”.

He says: “It’s time to demonstrate change and a focus on the needs of the membership and the consumers it serves.

“It is within the CII board’s gift to address the deep-rooted impact it has caused over recent years, if there is a genuine intent to do the right thing for the PFS membership, CII and PFS.

At no stage does the board not know exactly where these funds are

“Both the PFS and CII have a lot to offer the respective personal finance and insurance sectors, and should be leading the way in respect of standards, professionalism and trust.”

Despite the insistence of the heads of both the CII and the PFS, I can’t help feeling there is still more trouble to come. As we go to press with this issue, the CII is due to hold its AGM on 30 November.

Will the CII and the PFS maintain their supposed new-found friendship? Or will the issues that appear to still bubble under the surface cause another ruckus?

This article featured in the Dec 2023/Jan 2024 edition of MM. 

If you would like to subscribe to the monthly magazine, please click here.

The post Cover story: The PFS and CII are friends again. Or are they? appeared first on Money Marketing.

“Of course, if something happens like SJP scrapping its exit fees, we will need to cover it.”

Full disclosure: I’m not sure the quote is verbatim. But it was words to that effect I said to MM’s new news editor, Dan Cooper, and our chief reporter, Lois Vallely, on 16 October.

Oh, how we laughed.

I didn’t tell them I had typed out the following intro a few days earlier: “St James’s Place will remove its controversial exit fees as part of an extensive overhaul of its charging structure.

Any steps made by SJP in the right direction should be celebrated

“The move appears to have been prompted by the Financial Conduct Authority’s increased focus on fair value for customers as part of its Consumer Duty work.

“SJP held firm with its charging structure when the FCA first revealed its proposals. But, having come under increased scrutiny in recent months, the firm has had a change of heart.”

SJP chief executive Andrew Croft: View from the top

The morning of our flagship event — MMI London — rolls around and guess what happens? We receive a press release on behalf of the advice giant, announcing changes to its charging structures.

This overhaul includes the removal of what SJP calls “early withdrawal charges” (EWCs) — it doesn’t use the term ‘exit fees’. We do, though, as do many others including the FCA.

My speculative intro got put to use before we had welcomed the first MMI delegates through the door at 155 Bishopsgate in the capital on the morning of 17 October.

We are rebalancing our charges so that they better reflect the value clients see

Lois kindly delved in further to the rest of the details contained in the release, so we could get the initial news story up online.

What a start to the day. The topic came up a few times throughout the conference as the audience and our speakers digested the fact we were truly beginning to see the Consumer Duty in action.

And all within just a few months of the 31 July implementation date.

Editor’s view: SJP and FCA can’t do right for doing wrong — but where’s the balance?

But are things moving as quickly as they seem to be? Well, although SJP has revealed its intentions, it doesn’t appear to be in a particular hurry.

The changes won’t be coming in until the second half of 2025 — another two years.

SJP says it is ensuring it will “continue to have a sustainable and competitive charging platform for the long term.”

Shareholder pressure will have played a role in SJP’s actions

It suggests the charges will offer “simplicity, comparability and a continued focus on value for clients”.

Others will argue it should be introducing the changes immediately. Many more will say SJP could have acted years ago.

‘Only 12 years late’

Some readers of Money Marketing have welcomed SJP to the world of RDR (Retail Distribution Review) — suggesting the firm is “only 12 years late to the party”.

Then, of course, we have to consider the fact the changes the firm talks of, in terms of its EWCs, seemingly apply only to new customers.

So there’s plenty of food for thought there on just how fair or good value that is for existing clients within the six-year “gestation period”.

Hopefully, the fact SJP is making changes will remove some of the negativity across the board

The firm has sought to clarify some “misconceptions” since the announcement. It appears the EWCs will tail off eventually. But questions remain. Could customers still feel trapped?

On social channels there have been discussions as to whether the news should be seen as a positive move for the advice world.

Sean Banks, a financial planner at Herbert Scott, posted on X: “Like it or not, SJP is the lens through which many people view the financial planning/wealth management profession.

“Any steps made in the right direction should be celebrated. Regulation apparently doing its job.”

Personal Investment Management & Financial Advice Association (Pimfa) head of public affairs Simon Harrington challenges this view and questions whether those outside the financial advice world are as interested as those within it think they are.

This is a much cleaner fee structure that will be more transparent for clients. They will know exactly where they are

He replied to Banks: “I don’t think this is true. I think SJP is the lens through which people who work in financial planning/wealth management think they are viewed.

“The idea that the various vagaries of charging structures are discussed and understood by the wider public doesn’t register.”

Interestingly, back in late January 2022, MM learned SJP had decided to drop the ‘Wealth Management’ part of its company name in a bid to better communicate its offering. It was part of a revamped brand image — the first upgrade since the firm had been established in 1991.

What changes are coming, then?

SJP has carried out an internal evaluation of its charging structures, which will result in a revised pricing model for most new investment bonds and pensions.

Some of the charges will start to come into effect from 2024. It’s just the whole transition will be in 2025

The firm says these will operate with “an initial charge and ongoing charges applicable from the outset and without any EWCs or gestation period”. It highlights this is already the case with its unit trust and Isa business.

SJP also revealed plans to unbundle its costs so customers can tell what they are paying for. This means charges across all its wrappers, which have historically been disclosed “primarily on an all-inclusive basis”, will be separated into components. These will comprise initial and ongoing advice, investment management, and product administration that will be tiered for larger investment.

“We are rebalancing our charges so that they better reflect the value clients see across each element of our proposition,” the company adds.

SJP says the changes have “naturally” involved engagement with its key regulators.

If this has been brought about by the Consumer Duty then I think the Consumer Duty is doing exactly what it’s designed to do

The FCA wasn’t prepared to go into detail about what discussions with SJP or specific firms had entailed. But the regulator has put a lot of weight behind the Consumer Duty so I’d hazard a guess it came up in conversation a fair few times.

SJP suggests its “continued focus on value and outcomes for clients is consistent with the expectations of the Consumer Duty”. It’s confident its changes will “work well” for clients.

The company highlights that the external environment has evolved and is now increasingly seeking simple comparability of all advice, investment management and other services on a component-by-component basis.

SJP claims clients will see “enhanced value” from the changes with reduced overall ongoing charges for existing client investments across the firm’s core product wrappers.

It is increasingly evident that consumers are seeking simple comparability

Has the company been backed into a corner and realised there is no way out from the increased scrutiny the Consumer Duty brings?

Previously it appeared to be under the impression its charging structure would not be affected by the principles-based regulation.

What is ‘unreasonable’?

The FCA has made it clear financial services firms must avoid charging “unreasonable exit fees” because they discourage consumers from leaving products or services to get a better deal elsewhere.

What commentators may argue the regulator hasn’t been so clear about is what constitutes ‘unreasonable’.

So, in theory, individual firms could say they deem their exit fees to be ‘reasonable’ and that would be the end of it.

The charges will offer simplicity, comparability and a continued focus on value for clients

In practice, it seems that’s not the case. At the very least we know firms would need to justify the reasons for such fees, and maybe that’s easier said than done.

A spokesperson for the FCA tells MM: “The Consumer Duty sets higher and clearer standards of consumer protection in financial services. We recognise that some firms have needed to make significant changes to their business model to improve customer outcomes.”

The changes announced by SJP are extensive and demonstrate the impact the Consumer Duty can have for the benefit of consumers. Make no mistake — the regulator will monitor how those changes are implemented and any effect they have on clients.

And, despite some suggestions the Consumer Duty was introduced purely to change the ways of SJP, the FCA will be keen to see what plenty of other firms decide to do.

Who knows? We may even see this date brought forward if testing goes better than expected

Could SJP’s actions cause a domino effect, with more firms following suit? Once SJP unbundles its costs for a clearer comparison, could other companies come under pressure for being more expensive? The FCA isn’t looking to remove the competitiveness of the market but other practices may be called into question.

Consumer Duty Alliance chief executive Keith Richards tells MM charges across the whole of retail financial services have been under the spotlight for many years.

He says: “Changes in value and methodology can be tracked throughout the past two decades, and further change as a result of the Consumer Duty focus is likely to continue over the coming year.

“Consumer bodies and regulators have been seeking greater transparency and comparability of charges across retail financial services for many years. There is certainly plenty of discussion among advice firms over moves away from ad valorem to other structures, such as fixed fee or time-costed hourly rates.”

I suspect SJP had already recognised the need to transition all clients to the new charging structure once implemented

Richards adds: “The changes to fees and exit penalties announced by SJP recently are very welcome and unquestionably positive early results of the clear focus on the Consumer Duty outcomes, rather than compliance with regulatory rules, which I believe will ultimately benefit the firm, its clients and indeed the wider sector in the long term.

“Whether from regulatory pressure, self-assessment or being under the media spotlight, there is no doubt that shareholder pressure will have also played a role in addressing a long-standing criticism of SJP’s uniquely different charging position as both manufacturer and distributor, fair or otherwise.”

Richards also shares his views on the speed with which SJP plans to implement the changes.

“While some criticism has been levied regarding the implementation timeframe of proposed changes, as well as the suggestion of differential treatment between new and existing clients, it is not unusual for large, vertically integrated firms, or of course platforms, to have to plan and backtest IT system development and align with process changes. Who knows? We may even see this date brought forward if testing goes better than expected.

The changes will reduce the underlying cash result over the next few years before growth accelerates

“I suspect SJP had already recognised the need to transition all clients to the new charging structure once implemented, but it hasn’t quite articulated this point clearly — something I am sure will be rectified.

“There has been no let-up in Consumer Duty activity over the summer months and the coming months look set to become just as busy as the sharing of good practice, FCA assessment and thematic work is likely to drive further action.  As with the RDR, for many firms the Consumer Duty has served to accelerate change already in progress.”

Brand reputation

SJP states its charges “will continue to compare favourably with competitor rates available in the marketplace”. It claims this represents “good value for the high-quality service” it provides alongside its partners.

“This will support our brand and reputation in the marketplace, which will, in turn, benefit the partnership,” the firm says.

Consumer bodies and regulators have been seeking greater transparency and comparability of charges across retail financial services for many years

But SJP does acknowledge such changes could result in some pain for shareholders in the short term.

It says: “For shareholders, these changes and the associated implementation costs will affect the shape of the cash result in the future. The changes will reduce the underlying cash result over the next few years before growth accelerates over the medium term and beyond, aligned with the development of total group funds under management.”

The company will now need to commence a “broad and complex programme” to accommodate these changes. Next year it will introduce changes to its fund charges (see table example below).

Fund charges illustration

Source: SJP

It anticipates it must spend in the region of £140m–£180m before tax to implement all the changes it has announced. About £10m will be spent over the remainder of 2023, £95m in 2024 and the balance in 2025.

Parting gift

With SJP recently revealing its succession plans for departing chief executive Andrew Croft, there had been talk of whether his replacement, Mark FitzPatrick, would be the one to shake things up.

The changes to fees and exit penalties announced by SJP recently are very welcome

Did Croft want to give the firm a parting gift?

On 17 October Croft said: “The changes announced today are about positioning our business for continued success by putting in place a future charging structure that reflects the evolution of consumer engagement with retail financial services, and is aligned to the long-term value that we deliver to clients through the partnership.

“We have always been confident that SJP offers its clients real value that helps individuals and families achieve financial wellbeing. However, it is increasingly evident that consumers are seeking simple comparability, and this has been reflected in regulatory trends too, as highlighted with the assessment of value and the Consumer Duty regimes. The review of our charging model reflects these developments.”

We should start seeing good things happen with SJP fees from next year

He added: “I am confident that SJP’s ability to both deliver and demonstrate value in the future, with this sustainable model of charging for our end-to-end services, is good for clients and represents an exciting opportunity for SJP.”

SJP says it has £158.6bn of funds under management and more than 900,000 clients. It says throughout its history it has evolved to meet changing client expectations and developments in the industry and regulatory landscape.

Changes welcomed

The changes have been welcomed by the founder and managing director of Oakmere Wealth Management — a partner practice of SJP.

Carla Brown tells MM: “My thoughts are that change is welcome. It’s about us demonstrating value to our clients and being much more transparent, which I think is a good move.

We [FCA] recognise that some firms have needed to make significant changes to their business model to improve customer outcomes

“I think it’s going to be in the best interest of both clients and partners because it’s going to make it much easier for us to explain to our clients; it’s going to remove a lot of the negative interest we have attracted recently.

“If this has been brought about by the Consumer Duty then I think the Consumer Duty is doing exactly what it’s designed to do, which is a good thing.”

Talking about the removal of the EWCs and the discrepancy this may cause between existing and new clients, Brown adds: “Clients who have EWCs currently will not have paid any initial advice fees. It would be unfair for them to be removed as new clients going in will be paying initial advice fees.

“The advice has to be paid for somewhere so it would be unfair to new clients if you took it off the old clients because then it means the old clients haven’t paid for advice. These things often get misinterpreted.”

She continues: “Do I wish the pace of change was quicker? Yes, of course I do. But I understand the system issues that are going to take time to be addressed. Some of the charges will start to come into effect from 2024. It’s just the whole transition will be in 2025. We should start seeing good things happen from next year.”

Our continued focus on value and outcomes for clients is consistent with the expectations of the Consumer Duty

Brown explains how it all happened quickly and advisers were informed about the changes when the markets were told.

“We had no prior warning. You do hear things on the grapevine, but we were informed at the same time as the markets because obviously it is market-sensitive information.”

She says communication came out in the days following the announcement and support has been provided to advisers, with webinars and other materials to help conversations with clients. Communication has also been sent to clients directly so they are aware of what’s happening.

She acknowledges change can be scary for people but also suggests there is a place for EWCs.

“Over a longer-term investment, clients would have been better off with an EWC. If they are going to keep the money in for over six years, ultimately the client would have been better off.

Like it or not, SJP is the lens through which many people view the financial planning/wealth management profession

“But I appreciate it can muddy the waters. It’s not especially transparent. I think this is a much cleaner fee structure that will be more transparent for clients. They will know exactly where they are and there is less chance for misunderstandings.”

Brown hopes to see the Consumer Duty prompt other companies to act too. She explains the unbundling of SJP’s charges is welcome because it’s aligned with competitors and will allow the firm to be seen on a like-for-like basis.

“Traditionally it has been seen as quite opaque,” she explains.

“Actually, what’s important to clients is trust — it’s about the relationship and we’ve got so many happy clients it just demonstrates that we are doing a really good job.”

She argues the negativity surrounding SJP can be damaging to the advice profession as a whole — along with arguments between IFAs and restricted advisers.

“It damages public trust because we should be seen as a professional service that looks at itself in a professional manner. If we’re all bickering and fighting and trying to score points, it doesn’t come across that way.

The idea that the various vagaries of charging structures are discussed and understood by the wider public doesn’t register

“Hopefully, the fact SJP is making changes will alleviate some of that and remove some of the negativity across the board.”

Brown also highlights the positive movement SJP is trying to bring to the wider advice profession with its academy, which, along with others, brings greater diversity.

Could the move on fees be what the company needs to shift the conversation away from it, or at least help it to be seen in a more positive light?

I’m not sure we can handle any more big announcements that clash with an MM event.

This article featured in the November 2023 edition of MM. 

If you would like to subscribe to the monthly magazine, please click here.

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