How do we close the advice gap?

That’s the million-dollar question I’ve heard debated time and again since I joined Money Marketing.

The consensus is that artificial intelligence and the introduction of new technology will free up advisers’ time and enable them to take on and serve more clients.

But could it be the banks that hold the key to closing the gap?

After the Retail Distribution Review was introduced in 2012, most UK banks stopped offering financial advice to all but their wealthiest clients. This was mainly due to the higher risks and costs now involved.

If this means that more people can get access to financial advice, it’s not necessarily a bad thing, says Ball

Their departure created a big opportunity for Hargreaves Lansdown, St James’s Place and other wealth managers. But the tide could now be turning.

In August, HSBC announced plans to double its assets under management to £100bn and become one of the top-five wealth managers in the UK in the next five years.

“In order to fulfil this vision, we are growing our national team of wealth advisers and relationship managers at scale,” it said.

But it’s not just HSBC. Barclays and Lloyds have also made moves back into wealth management. And, according to two experts, that can only be a good thing.

Mass-affluent market

Many advice firms no longer touch anyone with less than £250,000 in assets because it is not profitable for them to do so.

So, could banks help solve the problem? Hoxton Wealth chief executive Chris Ball believes so.

We should embrace the banks with open arms if we really want to close the advice gap

“These banks are focusing on the ‘mass affluent’ market — as in people with £75,000 to £250,000 in deposits,” he says. “There’s a massive opportunity here, because this group of clients need advice nearly as much as the ultra-high-net-worth individuals do.”

NextWealth managing director Heather Hopkins agrees.

“NextWealth research shows that the average portfolio size for financial advice firms is over £400,000. There is a huge, untapped market out there,” she says.

“One of the challenges we face as a nation is that people don’t seek out advice. The more firms that shout about the value and availability of advice, the more people will seek it out.”

The resurgence of the banks may put some wealth managers’ noses out of joint, but Hopkins says they needn’t worry.

Many advice firms no longer touch anyone with less than £250,000 in assets

“Demand for advice far outstrips supply, so I don’t see banks competing with traditional wealth managers.”

Ball agrees that banks do not pose a threat.

“If it means that more people can get access to financial advice because the banks make it cheaper to do so, I don’t necessarily see that as a bad thing.

“As a profession, we should really focus on the positives of what we are doing and not the negatives of what the banks are doing.”

Independence

Ball thinks the banks will have tied products, and “a lot of it will be around product sales rather than giving proper, holistic financial planning”.

The resurgence of the banks may put some wealth managers’ noses out of joint, but Hopkins says they needn’t worry

Therefore, his message to wealth managers is simple: “Keep doing what you’re doing — giving great, independent financial advice. That independence bit, I think, will be key.”

The Lang Cat consulting director Mike Barrett agrees.

“For these types of services, advice is rarely the product. It’s about the banks wanting to sell more of their own funds.

“As a consequence, the vast majority of the advice profession should have nothing to fear from these offerings.”

When I spoke to the FCA’s Nick Hulme, head of advisers, wealth and pensions, he told me the regulator was open to banks entering the sector.

“Financial advisers can do their bit — they are already active in the market and very knowledgeable.

It’s not just HSBC — Barclays and Lloyds have also made moves back into wealth management

“If there are other players that are going to come in to help reduce that advice gap, which this country really needs, then we’re agnostic to who that is.”

Hulme added that the regulator was “absolutely on board and behind anyone with the right intentions and motives”.

As for an old friend we haven’t seen for a while, we should embrace the banks with open arms if we really want to close the advice gap.

Dan Cooper is news editor

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

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

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While at university I had a friend with whom I fell out.

Now, contrary to what people may think, I hate confrontation. I just don’t see the point in holding a grudge. Unless something truly unforgivable has been done, I’m of the opinion one should talk it out and then move on.

This university ex-friend was not of that opinion. I can’t even remember how the argument started — probably over something juvenile. Anyway, we made up over and over again, and every time I thought the issue, whatever it was, had been put to bed, it reared its head once again.

I’m not saying I was blameless in the situation. I’m sure I did something. I’m just not sure what.

If the CII refuses to justify its latest ‘swamping’ of the PFS board, trust in both professional bodies will continue to erode

After a few weeks of this cycle, we decided to go our separate ways.

Much like our fragile friendship, the truce between the Chartered Insurance Institute (CII) and the Personal Finance Society (PFS) seems to have ended once again. Last month, the CII announced that its chief executive, Matthew Hill, along with three other executives — Trevor Edwards, Mathew Mallett and Gill White — had been appointed to the PFS board.

The reasoning behind this “flooding” of the PFS board — to use the term adopted by critics — is not clear. Even when pushed, all the CII would say was that it was “clear the PFS would benefit from having more CII executives” who would be “available to input directly into discussions and decision making”.

On repeat

The CII’s move has been described as “cynical” and is likely to damage members’ trust in the institute even further. Because this is not the first time such a move has happened. It is just the latest chapter in the professional bodies’ weighty tome of discord.

Calls have been made for the PFS to break away from the CII and set up on its own

Most readers will remember that things first came to a head in December 2022, when the CII imposed its own directors on the PFS board in a highly controversial step. The CII said it had taken action due to “serious and significant” governance failures at the PFS. The PFS immediately hit back, slamming the CII’s decision, while former president Sarah Lord condemned the CII’s “aggressive” behaviour.

But the story stretches back further. For the best part of a decade, concerns have repeatedly surfaced to the effect that the CII wants to fold the PFS into something akin to a committee within the institute.

Member funds

And then there’s the issue of the money. The PFS has £19.1m of member funds that should be used to improve access, education and practice.

The CII’s move has been described as ‘cynical’ and is likely to damage members’ trust in the institute even further

However, according to Our PFS — a group set up by adviser and PFS member Alasdair Walker to ensure the PFS retains its independence — around £8.1m of these funds are currently held by CII in an intercompany loan arrangement.

One source close to the PFS claims the CII has made many bungled attempts to grab the cash, starting as far back as 2017 when former CII CEO Sian Fisher attempted to deregister the PFS as a separate legal entity. This was attempted again in 2019 and a third time in June 2021, after which Fisher resigned.

The CII has repeatedly denied that it is after the PFS’s member funds. However, for as long as it refuses to give a clear reason for swamping the PFS board with its own directors, rumours will continue to fester and trust in both professional bodies will continue to erode.

The reasoning behind this ‘flooding’ of the PFS board — to use the term adopted by critics — is not clear

Calls have been made for the PFS to break away from the CII and set up on its own. Others want to set up an entirely new body for financial planners, independent from CII influence.

In the end, I made peace with my former friend from university. Around 10 years after we graduated, I messaged her on social media and said that there were no hard feelings from my side and we should grab a coffee next time I was in Belfast. She agreed, and it’s nice to know that things are all fine between us.

I wonder if the same will ever be said for the CII and the PFS.

Lois Vallely is chief reporter

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

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

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It won’t have escaped your attention that the new Labour government’s first Budget falls on 30 October — the eve of Halloween.

Unlike the newspapers, I’ll spare you too many spooky puns. But allow me just this little one: people are frightened.

Prime minister Keir Starmer and chancellor Rachel Reeves have warned of “pain” and “difficult decisions”. It seems they’re preparing us for the worst.

Truthfully, what did you expect? The Conservatives were famously left a note by Labour when they took over in 2010, warning, “There is no money left.” Labour has hardly been left a better deal in return. With an enormous £22bn “black hole” in public finances to fill, things are bound to get ugly.

It is unclear if the government would implement changes immediately or defer them to the next financial year

The party has promised not to touch income tax, National Insurance or VAT but this leaves many options still open. Each has the potential to help fill the coffers but the pay-off could be huge in terms of backlash, complexity and unintended consequences.

Starmer says those with “the broadest shoulders should bear the heavier burden”, suggesting most clients will be affected. Advisers will need to be at the top of their game in the coming weeks, so let’s look at the biggest talking points.

Capital gains tax

The shortest odds are on a capital gains tax (CGT) announcement. Nine out of 10 advisers have reported growing concerns from clients ahead of a predicted hike in CGT rates in line with income tax, resulting in higher earners paying up to 45% on profits.

It is unclear whether the government would implement changes immediately or defer them to the next financial year. In the June 2010 Budget, rates were raised the following day.

Labour needs huge savings, fast — there’s no denying that. But big changes have long tails of consequences

“If the chancellor wants money as soon as possible, a deferral [to 6 April 2025] could actually deliver more in the short term,” says Technical Connection managing director Tony Wickenden.

Reports are already suggesting a selling ‘frenzy’ ahead of a potential announcement.

As always, it’s impossible to know at this stage whether any change will transpire, but Wickenden advises those already planning to make disposals in 2024/25 to act ahead of 30 October.

Inheritance tax

Politicians have tiptoed around inheritance tax (IHT) for years, with the Conservatives in particular fearing the reaction from their wealthier voters. However, while unpopular, the tax affects just 4% of estates.

With Starmer’s “broadest shoulders” pledge in mind, IHT looks ripe for the picking. That said, changes to the nil-rate band, reliefs or gifting allowances would require a delicate balancing act.

In contrast to its predecessors, it’s vital this government views pensions with a longer-term lens

“Wealthy individuals could move assets offshore to avoid it… and tinkering with reliefs available to farmland, private companies and AIM shares would provoke a reaction,” says AJ Bell co-founder Andy Bell.

Advisers should be wary of a ‘double death tax’, where CGT could be added to IHT, raising the total IHT burden to 54% for some, according to thinktank RSM.

Experts agree that clients should make the most of allowances on offer to them today.

Pensions

A Budget isn’t a Budget without whispers around pensions. Labour has committed to the triple lock, but there are questions over the exemption from IHT, as well as the 25% tax-free lump sum.

After years of speculation, it could also be time to accept a move to flat-rate tax relief, which could bring in £2.7bn per year, according to the Institute for Fiscal Studies. Reeves would have another unenviable tightrope to walk here.

“Assuming a 30% flat rate, basic-rate and non-taxpayers would benefit — but at the expense of higher- and additional-rate taxpayers,” says Aegon UK pensions director Steven Cameron.

Wickenden advises those already planning to make disposals in 2024/25 to act ahead of 30 October

For some, the ‘no regrets’ action may be to pay extra into their pension before the Budget.

In contrast to its predecessors, it’s vital this government views pensions with a longer-term lens. And this is true across the board.

Labour needs huge savings, fast — there’s no denying that. But big changes have long tails of consequences.

Can it resist the temptation of quick wins? There is a country full of futures depending on it.

Maria Nicholls is features editor

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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The first time I had to write about business protection, I felt intimidated by the subject.

Individual protection was more within my comfort zone — as an employee, wife and mother, I could relate to it better.

Although obviously there is common ground between business and individual protection, I found the former harder to connect with.

My only understanding of running a business was based on what business owners had told me about it.

So, when doing research for my first article on the subject, I was paranoid I was going to get something terribly wrong.

Like anything you start off dreading, this isn’t as bad as you think when you finally take the plunge

I can understand why a lot of advisers don’t want to get involved in it. Protection advisers have told me business protection is more complicated than individual protection, and that you need to know what you’re doing. So, ideally, it should be signposted or referred to specialists in business protection.

But it’s important that advisers who don’t do much protection work at least speak to their business-owner clients about business protection, because we never know what’s around the corner.

The uncertainties of life give us enough to contend with on a personal level but, when you throw in running a business, there’s another layer of potential worries about if the worst were to happen. Would the business be able to pay its employees, service its debts or even carry on trading if an owner or director became seriously ill or died?

Close to home

I have seen case studies in the product literature on insurers’ websites that brought the need for business protection to life. But, when it’s close to home, it’s different — it hits harder.

If you don’t do much of it, addressing it is bound to feel a bit scary

My in-laws spent their working lives building up a family business and, despite some setbacks over the years, it gave them a good life. But in 2022 my father-in-law was taken ill, completely out of the blue.

We all expected he’d stay in hospital for a few weeks, then recover at home before going back to work. But his condition deteriorated and, after almost two months in hospital, he died. None of us could have predicted that.

Luckily, the family business had everything in place to cover this situation. It meant my mother-in-law and the other directors had some financial breathing space while they came to terms with their loss.

Also, my in-laws had been making plans to exit the business and retire over the next few years, so those plans were just modified a bit and retirement was brought forward for my mother-in-law.

It’s important that advisers who don’t do much protection work at least speak to their business-owner clients about it; we never know what’s around the corner

It’s been a long and difficult couple of years, but we have got through the worst of it and have established new routines. My mother-in-law was financially able to continue the work on the new house that my father-in-law had bought but sadly never got to live in.

I dread to think what things would have been like if my in-laws hadn’t given any thought to what could happen unexpectedly, and planned for it, but they’d always been matter-of-fact about things such as death.

I used to feel uncomfortable hearing their ‘When we’re gone…’ conversations. But, the older I get, the more I see that plans like this reduce the fear factor.

Facing fears

I’ve managed to overcome a lifelong fear of spiders by gradually increasing my exposure to them. Capturing them under a glass and putting them outside in the garden, as I do now, used to be impossible as I would just run from the room.

I can understand why a lot of advisers don’t want to get involved in it

I wouldn’t say we’re friends, but I get so many spiders setting up home in my house that familiarity has cured my arachnophobia. The funny thing is, when I lived previously in a London flat I hardly used to see spiders, yet my phobia was at its peak.

The same point could be made about advisers and business protection. If you don’t do much of it, addressing it is bound to feel a bit scary.

But, like anything that you start off dreading or putting off, it isn’t as bad as you think when you finally take the plunge.

Amanda Newman Smith is features writer. Contact her at: amanda.newmansmith@moneymarketing.co.uk

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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Over the years, many things have come out of Canada that have proved a hit over here in the UK — from maple syrup to Celine Dion.

If our new chancellor, Rachel Reeves, has her way, it could be pensions next.

Last month, on a visit to Toronto, Reeves unveiled plans to implement a ‘Canadian style’ pension model to unlock further investment potential.

She said she wanted British schemes to “learn lessons” from this model to “fire up the UK economy”.

Although Reeves’ proposals are in their infancy, there are many questions the chancellor will need to answer

Reeves met with representatives from Canada’s ‘Maple Eight’ — a group of large-scale pension funds that manages US$2trn of assets — to get some tips.

“The size of Canadian pension schemes means they can invest far more in productive assets — like vital infrastructure — than ours do,” she claimed.

The UK model is more fragmented. In England and Wales there are 86 local government pension schemes that are individually managed by local authorities. These funds have a combined 6.5 million members and manage assets worth an estimated £360bn.

To help them become more like their Canadian counterparts, Reeves is reportedly keen on consolidating these funds by asking them to either pool their assets or merge.

Private markets

There is another big difference between us and our friends across the pond: while UK pension schemes invest mostly in assets such as equities and bonds, Canada’s focus on private markets.

However, this is not without risk. For example, Canada’s Ontario Municipal Employees Retirement System pension fund is the largest investor in Thames Water, which, despite being the UK’s largest water company, has debts of about £15.4bn, leading to speculation it could be taken over by the government.

Charlton believes that encouraging investment into any single asset class would be unwise

Although Reeves’ proposals are in their infancy, there are many questions to which the chancellor will need to provide answers. For example, does investment in public infrastructure genuinely offer better value than that of traditional portfolios?

Second, many big Canadian pension funds are major investors overseas (the Thames Water case being a prime example). If Reeves’ plan is to replicate the Canadian model here, will she too welcome global investment, or will she ‘force’ pension funds to focus solely on UK infrastructure investments?

Benchmarks

Steve Charlton, SEI’s managing director of defined contribution, EMEA and Asia, is concerned Reeves may set benchmarks that “make master trusts invest a certain amount in UK equities by a certain date”.

Forcing them to go down that route, he says, would cause problems; one being that this would drive up the value of — and encourage investment in — “sub-par equities”.

While UK pension schemes invest mostly in assets such as equities and bonds, Canada’s focus on private markets

Charlton also believes that encouraging investment into any single asset class would be unwise.

“If you want to go into private markets, go into it in a way that is diversified,” he says. “Don’t rely just on equities. Private debt is another good option.”

Charlton says pushing investment into infrastructure and private markets also won’t miraculously provide a solution to the wider problem — that people are currently saving too little. In his mind, both the previous and current governments have “missed a trick” by not focusing on increasing auto-enrolment contributions first.

“They [Labour] have said they will look at auto-enrolment during the second stage of the pensions review, but that won’t be for another year or two, maybe more. I believe they have got their priorities wrong. That’s the issue that needs to be looked at now, before anything else.”

Will Reeves welcome global investment, or will she ‘force’ pension funds to focus solely on UK infrastructure investments?

Former chancellor Jeremy Hunt and many others have used the Australian pensions model as a ‘poster boy’ for how pensions should be done, says Charlton.

“But what people forget is that Australians put more into their pensions,” he observes. “If you don’t have enough money going in, you will never have enough coming out, no matter how cleverly you invest.”

Whether the pensions system is the latest Canadian import to stick remains to be seen, but the industry will watch with eagle eyes.

Daniel Cooper is news editor. Contact him at: daniel.cooper@moneymarketing.co.uk

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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The first anniversary of the Financial Conduct Authority’s Consumer Duty attracted bucketloads of commentary, most of it positive.

The new regulatory framework, we are told, has reinvigorated the sector, encouraging firms to operate more efficiently and professionally.

Service levels have improved and advisers are demanding higher standards from their providers, fostering more competition.

The duty has not led to an exodus of advisers, says Richards. The bigger issue is an ageing workforce

Moreover, the focus on delivering good client outcomes and prioritising client welfare is universally supported by the industry, backed up by surprisingly robust enforcement from the FCA. These reforms are here to stay.

So, an unambiguous triumph? Well, yes and no. The regulations have provoked grumbles as well as cheers from certain quarters. The Consumer Duty, critics claim, is burdensome, bureaucratic and costly — at best unnecessary, at worst actively harmful.

Certain things always follow from changes to established norms. First, nobody really likes it, especially at the start. Second, there are always unintended consequences. Finally, it takes a while for any benefits to accrue — so, evaluating the success of the Consumer Duty may be premature.

Negativity

But, in terms of who likes the reforms, there has clearly been some negativity from clients and advisers. A study by Smart Money People showed 84% of clients reported no improvement in how providers treated them, with 7% reporting worsening service.

The focus on delivering good client outcomes and prioritising client welfare is universally supported by the industry. These reforms are here to stay

Clients also complained about the lack of access to human support (48%), untrained staff (34%) and over-reliance on chatbots (24%), suggesting a disconnect between service providers and consumer needs. This is particularly true for vulnerable clients, 81% of whom reported no positive change.

If one purpose of the duty is to provide a more personalised client service, there’s clearly work to be done. Nor is it encouraging that only 23% of clients have left a review for their provider in the past year, as firms lack meaningful feedback on which to build.

As for advisers, adapting to the new regulations has not been cost free. Research by Dynamic Planner, for instance, showed a 100% year-on-year increase in the number of adviser reports generated — a significant investment in time and resources.

A study by Smart Money People showed that 84% of clients reported no improvement in how providers treated them

A notable example is the price and value outcome. Ensuring that pricing structures deliver ‘fair value’ to clients is a notoriously complex task, and research suggests over two-thirds of advisers have struggled to implement it effectively.

Fears

Overall, there are fears that compliance demands will force more advisers out of the profession, widening the already considerable advice gap. But how realistic is this unforeseen consequence of the duty?

Delivering the best outcomes for clients has always been at the heart of good firms, but we need to test and evidence it, adds Richards

Consumer Duty Alliance chief executive Keith Richards believes critics are pointing in the wrong direction. The introduction of the duty has not led to an exodus of advisers, he says; in fact, numbers have slightly increased in the past 18 months. Instead, the bigger issue is an ageing adviser population.

“More than 50% of advisers are now over 60. Consolidation and succession planning have resulted in a reduction in the number of regulated advice firms, meaning exits are likely to follow over the next couple of years.

“All of this was in progress before any suggestion of the Consumer Duty.”

Richards also denies the increased costs of the duty have been passed onto clients. Instead, he says, most firms have absorbed them. In addition, the changes that have resulted — along with the better use and integration of technology — may reduce the cost of advice and services in the longer term.

The Consumer Duty, critics claim, is burdensome, bureaucratic and costly — at best unnecessary, at worst actively harmful

None of this gives room for complacency. Challenges remain, and service standards from providers have not always improved in line with expectations. But that’s no reason to make the perfect the enemy of the good.

“Change can often bring its share of concern and frustration,” concludes Richards.

“However, we are seeing a more positive picture emerge. Delivering the best outcomes for clients has always been at the heart of good firms… but we need to test and evidence it.”

Tom Browne is editor of Money Marketing

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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I have a pretty good grasp of the English language. It is, after all, the only language I speak. But that does not mean I don’t occasionally misuse a word.

For years I used the word ‘obnoxious’ when I meant ‘putrid’ — close, but not quite right. During a recent presentation, I nearly used the word ‘inane’ when I meant ‘innate’ — an easy mistake to make, I think.

And, perhaps my crowning glory, I once used the word ‘cuckolded’ to mean ‘blocked’ — much to the amusement of my dad, who told me I probably shouldn’t use that word again.

There are so many words in the English language; trying to quantify exactly how many took me down a very deep rabbit hole that wouldn’t be hugely helpful for this article. This makes it likely you’ll sometimes use the wrong word.

I asked a lot of advisers/planners how they referred to themselves. Most said it didn’t really matter as long as the client was getting a good service

It also makes it tricky to always know which word to use. For example, is ‘advice’ really the right word to describe the profession you work in?

If you ask ChatGPT for synonyms for ‘advice’, it gives you a lot. Guidance, counsel, help, direction, instruction, information, enlightenment, suggestions, hints and opinions, to name just a few. I like the term ‘financial enlightenment’. Maybe we should take that up.

Regulatory boundary

As we all know, the Financial Conduct Authority is in the process of examining the regulatory boundary between financial advice and other forms of support — commonly known as the Advice Guidance Boundary Review.

I was having a chat with Money Marketing’s former editor, Katey Pigden (poached by The Lang Cat), the other day and we got onto the topic of the review. Katey questioned whether ‘guidance’ might actually be a better term for what advisers do.

In everyday vernacular, if you give someone advice, the implication is that they can take it or leave it. Meanwhile, if you guide someone, this suggests a higher level of support than just suggesting they do something. So, maybe you’re financial guides?

I like the term ‘financial enlightenment’. Maybe we should take that up

Last October, NextWealth, in its Financial Advice Business Benchmarks report, looked into what client-facing staff within advice firms called themselves. It determined that use of the title ‘planner’ was on the rise, with 31% of client-facing staff within the profession now using the term to refer to themselves.

After all, the qualification you receive from the Chartered Insurance Institute is called the advanced diploma in financial ‘planning’, not financial ‘advice’. And, if you receive chartered status, you’re a chartered financial ‘planner’.

Collaboration

Finova Money co-founder Rob Schwarz posted about this on LinkedIn recently.

Maybe we don’t need to change the terminology — just be clearer about what regulated financial advice actually is

Schwarz suggests the key difference is that a planner will collaborate with a client to design and build their bespoke financial plan before advising them on any financial products. An adviser, on the other hand, will “skip this important first step” and “jump straight to diagnosing your problem and prescribing financial products to fix it”.

I asked a lot of advisers/planners how they referred to themselves. Most said it didn’t really matter as long as the client was getting a good service. Strategic Partners director Roy McLoughlin even jokingly referred to himself as a “financial architect”. It’s just that he designs financial plans instead of buildings.

So, perhaps there isn’t a need to change the term ‘advice’ after all. Maybe we just need to be clearer about what regulated financial advice actually is.

Is ‘advice’ really the right word to describe the profession you work in?

For many who don’t work in the profession, it’s not something they’re aware of. Before I joined MM, I had no idea how the role of financial adviser differed from that of accountant. And I know many people are convinced that Martin Lewis is a financial adviser, despite the fact that he constantly tells us he is not.

Whether it’s called ‘financial advice’, ‘financial guidance’ or ‘financial enlightenment’, if people don’t know what advisers do, or that they even exist, they’re not going to seek their services. Clearly, we need to be shouting more about the profession.

Lois Vallely is chief reporter. Contact her at: lois.vallely@moneymarketing.co.uk

This article featured in the July/August 2024 edition of Money Marketing. 

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

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Imagine that someone has put a lovely big cake in front of you. You’ve built up an appetite and it looks delicious. You have visions of devouring the lot.

But then, all of a sudden, other people start tucking in. Before you know it, half the cake has gone.

You’d be a bit miffed if that happened, wouldn’t you?

A strange analogy, perhaps, but it’s probably how some private-equity-backed consolidators are feeling at the moment.

For many, the aim would have been to gobble up as many independent financial advisers as possible, build up their assets over five to seven years, then look for an exit. It hasn’t quite happened that way.

There are a multitude of reasons, but it boils down to two: competition and regulation.

Many ‘start-ups’ haven’t delivered the growth their backers anticipated due to unexpected competition

Louise Jeffreys, managing director of Bristol-based M&A firm Gunner & Co, says several new consolidators, entering the market at the same time after the pandemic, have played a big part.

The “start-up consolidators”, as she calls them, began to compete over “quite similar” targets.

“I think everybody wanted the same thing and I’m not convinced the private equity’s modelling expected a lot of people to do it at the same time,” she says.

This unexpected level of competition, adds Jeffreys, means many of the start-up consolidators haven’t delivered the growth their backers anticipated.

She elaborates: “They haven’t won as many deals as they might have expected and they are sitting there at £1bn, maybe £1.5bn, under management, after five years of buying businesses.

“They were thinking they were going to be adding £1bn a year and after five or six years they’d be at £5bn to £7bn. At £5bn, or £7bn, they are a nice big business; the private-equity guy is going to make a lot of money. But that hasn’t happened.”

As a result, says Jeffreys, “the consolidation of the consolidators” — which many predicted around the time of the pandemic — is “absolutely, definitely still in the offing”.

Although the Consumer Duty hasn’t caused acquisitions to grind to a halt, it has slowed their pace and affected the consolidators’ ability to grow

She adds: “They are going to look to each other to merge, to be bought out, principally because the private-equity guys are going to get fed up and say, ‘This is a way we can get the scale we are talking about and get our exit.’”

NextWealth managing director Heather Hopkins agrees, stating that she “100%” thinks the consolidators will start consolidating soon. This is partly due to the regulatory and cost pressures they are facing, she adds.

“I speak to private-equity firms on a quarterly basis,” says Hopkins, “and what I hear is that all the numbers are moving in the wrong direction. Fees are going down but costs are going up. There’s more pressure on advice charges, platform charges.

“It is still a good business to be in, but it’s much more challenging. The cost of regulation is enormous.”

Due-diligence pressure

Although the Consumer Duty hasn’t caused acquisitions to grind to a halt, it has slowed their pace and affected the consolidators’ ability to grow.

According to data from NextWealth, in 2023 there were 33 acquisitions between January and the end of April. In contrast, this year there were 28 acquisitions in the same period.

Simply, there is greater pressure on the due diligence consolidators now carry out before buying a firm, and on how effectively they implement it post-acquisition.

As Jeffreys explains: “Consumer Duty has changed whom the consolidators are buying and what they do with them afterwards; but their appetite to buy has not.”

The aim would have been to gobble up as many IFAs as possible, build up their assets over five to seven years, then look for an exit. It hasn’t quite happened that way

Effective due diligence means understanding the risk involved in acquiring a business. And that leads us to the next problem: getting good data. When NextWealth spoke to 19 consolidators in February, this was the top challenge all of them identified.

Returning to the cake analogy, the consolation for hungry consolidators is that there’s still an ovenful of IFAs looking to sell. But the cake eaters, surely, will soon start turning on each other to feed their appetite for growth — and then things could get very messy.

Dan Cooper is news editor. Contact him at: daniel.cooper@moneymarketing.co.uk

This article featured in the July/August 2024 edition of Money Marketing. 

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Those with memories of helicopters taking off from the roof of the US embassy in Saigon in 1975 are unlikely to associate Vietnam with peace, prosperity and stability.

In the years that followed, the country slid into communist stagnation. In the 1980s, its population of 66 million had a GDP per capita of around $227. Its biggest export was scrap metal and its only friend the Soviet Union.

Even the period of reform known as Doi Moi, beginning in 1986, was overshadowed by the more noteworthy expansion of its Asian neighbour, China, and there was little to suggest Vietnam would one day emerge as a global player.

Like other countries emerging from destructive conflicts, it has a relatively young and dynamic population

Paradoxically, however, the very destructiveness of the Vietnam War laid the foundations for the region’s resurgence. It cemented a desire for predictability, and the resulting continuity — however unsatisfactory from a human-rights perspective — enabled Vietnam to move from being a net importer of commodities such as rice and lamb to becoming a major exporter.

Doi Moi took this economic realignment a step further. Its aim to create a “socialist-oriented market economy” on the China model, combining old-style state control with new market freedoms, led to the creation of a stock exchange and numerous private enterprises.

These reforms accelerated in the 1990s, with the normalisation of relations with China and the removal of the US embargo, which allowed international organisations such as the World Bank and the IMF to engage properly with Vietnam.

While Bangladesh, for example, can challenge in terms of low-cost manufacturing, it can’t boast of the same global influence as Vietnam

Since then, the country’s industrial and manufacturing growth has been significant, often outperforming other Southeast Asian countries in various metrics. Electronics is a key example, with around 60% of Samsung’s smartphones now being made in Vietnamese factories.

And, although the tensions between the ‘socialist’ and the ‘market’ components of Vietnam’s system are obvious, this has proved more durable than many would have predicted. Indeed, while China has leaned too heavily towards political control in recent years, Vietnam has generally managed the balance more successfully, standing out in a region characterised by quasi-democracies and military dictatorships.

Also, like other countries emerging from destructive conflicts, Vietnam has a relatively young and dynamic population, with a median age of around 32. This translates into a large and increasingly affluent consumer base and relatively low labour costs.

Investors who were looking in a different direction 30 years ago should maybe take note

Furthermore, Vietnam occupies a key geographical location — effectively a gateway to a market of over 600 million people across the ASEAN region, which has contributed to its appeal for foreign investment.

Fund manager

Dragon Capital is a case in point: founded by Dominic Scriven in 1994, it is the longest-established, independent, Vietnam-based fund manager, with $5bn (£4bn) of AUM. One third of this is in Vietnam Enterprise Investments Limited (VEIL), launched in 1995 and now a FTSE 250 company.

Vietnam has actively engaged with the UK IFA community

When I spoke to Scriven about Vietnam’s transformation, he noted two factors: the continued growth of the investor base; and what he believes is Vietnam’s imminent classification as an ‘emerging’ market. Both should attract further investment.

Indeed, since listing in London in 2016, VEIL has seen a significant increase in individual investors and institutions.

Vietnam has also actively engaged with the UK IFA community, although Scriven acknowledges that it will take perseverance to establish trust in the market.

Vietnam still faces fierce regional competition, of course. But, while Bangladesh, for example, can challenge in terms of low-cost manufacturing, it can’t boast of the same global influence as Vietnam.

The very destructiveness of the Vietnam War laid the foundations for the region’s resurgence

As Scriven concludes: “On the top leader’s desk, there are four red phones that go directly to Moscow, Beijing, Delhi and Washington, DC. There aren’t many countries where the top leadership has those four phones, or equal diplomatic communication with each.”

Investors who were looking in a different direction 30 years ago should maybe take note.

Tom Browne is editor of Money Marketing 

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

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“The brain needs the heart and the heart needs the brain.”

Although this quote may evoke the wisdom of Nelson Mandela or Mahatma Gandhi, it derives from Tina Belcher, a fictional character in animated series Bob’s Burgers.

The timeless debate of head versus heart, logic versus emotion, resonates across many aspects of life. But does this dichotomy have relevance in the realm of investment? When deciding where to place their money, should investors prioritise return on investment or allow their emotional response to guide their choice?

Since investing is a long-term challenge, it’s crucial to make decisions with your head before your heart

Two financial giants that appear to hold different views on this topic are St James’s Place (SJP) and Vanguard. The latter has previously stated that emotion and investing go “hand in hand”, and noted that about 40% of the value that a financial adviser provides to a client is emotional.

Vanguard says: “After all, emotions often motivate us to save. Love for our families, a need for security and our hopes for the future are all powerful drivers.”

The largest provider of mutual funds acknowledges that emotions greatly influence our behaviour and comfort level when investing, deeming this influence “valuable”.

SJP disagrees, however, stating: “Emotions and rational decision making rarely go hand in hand. So, recognising your own emotional response to investing will mean better decisions and choices in the long run.”

‘Passion for what you do is powerful, but you invest with your head,’ says Liontrust’s James Dowey

Supporting this view, a survey conducted in 2017 by Hennick Wealth Management found 69% of men with a high income had regretted making an investment decision based on emotion or gut instinct.

Technical analysis

In the realm of investment strategy, technical analysis is clearly based on logic. This discipline serves as a compass for investors, guiding them through the financial markets by meticulously dissecting statistical trends culled from trading activity.

By scrutinising factors such as price movement and volume, technical analysis unveils hidden opportunities and empowers traders to make informed decisions amid the ever-evolving landscape of investment.

Still, certain investments align more naturally with either emotional or logical motivations. Environmental, social and governance investments are often seen as inherently emotional, encompassing both broad societal concerns and personal values.

So, should investors follow their head or their heart? And what should advisers keep in mind while speaking to clients?

Liontrust co-head of global innovation and lead fund manager James Dowey emphasises that emotions can play a part but ultimately one’s investments are driven by logic.

“Passion for what you do is powerful, but you invest with your head,” he says, cautioning against letting emotions guide investment decisions.

Two financial giants appear to hold different views on this topic: SJP and Vanguard

Dowey thinks passion is one of the most powerful attributes a person can possess. But, he says, passion and emotion do not guide an investor — rather, they push them.

James O’Connor, also a Liontrust fund manager, believes emotional investing can even be dangerous from a financial viewpoint.

“We are all human, so we need to make sure we do not get emotionally attached to companies, especially when they are performing badly.”

O’Connor acknowledges, however, that investing in something in which you truly believe often helps.

As Dragons’ Den star Deborah Meaden said at a recent adviser event: “We are living in quite a troubled world and I think we feel, as human beings, more fulfilled if we can feel like we are part of the solution rather than part of the problem.

Should investors prioritise return on investment or allow their emotional response to guide their choice?

“You can’t drop the ethical stuff because it will leave you feeling empty… I want to know, when I buy something, I bought it from people who are making the world better, not making the world worse.”

It’s an important point that goes beyond giving an investor a warm feeling. But we shouldn’t forget that, since investing is a long-term challenge, it’s crucial to make decisions with your head before your heart.

Darius McQuaid is reporter at Money Marketing 

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

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Flicking through April’s edition of Money Marketing, I was struck by something odd.

Emblazoned across the front was the headline, ‘Pensions on life support’, and, in our cover story, news editor Dan Cooper wrote: “People aren’t saving enough but can’t afford to save more. How can the UK pensions system survive?”

It’s a vital question, and the industry must get to the bottom of it.

What is a pension if not a financial safety net?

The plight of pensions is no joke. Even before the cost-of-living crisis, we weren’t saving enough. Now, thanks to soaring inflation and crippling interest rates, worrying numbers of people are raiding pots to pay the bills.

Indeed, last year was one of the worst on record for outflows from advised platforms, with pensions being “hammered”, according to The Lang Cat. People just don’t have the spare cash.

Yet, turning a few pages more in MM, this headline too caught my eye: ‘Income protection sales are booming. Has the dial shifted on this protection underdog?’

‘Booming’ is a word we don’t see often enough in financial services today — especially when it comes to sales. But it’s certainly apt in IP’s case, with a record 247,000 policies bought last year — a 16% increase on 2022 and the highest figure since the Association of British Insurers started collecting data in 2000.

The thing is, protecting today’s income is seen as a ‘now’ problem. Retirement is deemed a ‘future’ problem

Three key factors appear to be behind the uptick: a carefully planned push from advisers, trade bodies and campaigners; the Consumer Duty changing the way advisers approach protection; and, interestingly, the rise in sickness absence since Covid.

Financial safety net

The protection industry is celebrating the long-awaited recognition of IP’s role in providing a financial safety net, as it should. This is a real coup.

But what is a pension if not a financial safety net? Why is extra cash seemingly being found to buy IP, but the same priority isn’t being made for pensions?

Last year was one of the worst on record for outflows from advised platforms, with pensions being ‘hammered’

A shout-out here to the Income Protection Task Force, a key player in the push of IP’s profile. Its annual IP Awareness Week has been hugely successful, as have its Seven Families and Seven Advisers campaigns. Where is the equivalent cheerleader for pensions?

But I want to look more closely at the Covid factor, especially the psychology at play. The pandemic highlighted the need for households to protect their income from the unexpected. It concerned younger people especially, with LV= finding that 8.3 million 25- to 44-year-olds without IP were considering taking out a policy in 2021. That’s a huge number from a notoriously apathetic group.

How do we ensure the defining moment doesn’t come too late?

The subsequent cost-of-living crisis has landed another financial punch, cementing IP’s status for many as a necessary expense. The thing is, protecting today’s income is a ‘now’ problem. Retirement income is deemed a ‘future’ problem. And human beings are not very good at delayed gratification.

Detached view

Did you know that, when we think of ourselves in the future, we use the same part of our brain as when we picture other people? Thinking of our future self is like thinking of a stranger. So being told we need to save money for our future self is regarded, essentially, as being told to give our money to someone else.

The future threat just isn’t tangible enough right now

Let me paint you a picture of how I — and likely many others my age — view retirement (and I’m not expecting this to go down too well with readers…).

I’m 36 and my parents, their friends and the parents of my friends are in their 60s and 70s. I see their colossal property profits, fantastic holidays, final-salary schemes and access to a state pension while they can still enjoy them. It will all work out for me like it did for them, right? Well, no.

Don’t get me wrong — I save into a pension and my measly pot already puts me in a better position than that of many. But should I have started saving earlier? Yes. Should I be saving more than the very minimum I can get away with under auto-enrolment? Also yes.

The plight of pensions is no joke. Even before the cost-of-living crisis, we weren’t saving enough

The problem is, the future threat just isn’t tangible enough right now.

Covid and the cost-of-living crisis have made protecting income a ‘now’ problem. What will it take for the same urgency to be felt with pensions? And how do we ensure the defining moment doesn’t come too late?

Maria Nicholls is features editor at Money Marketing

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

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