Platforum: Plenty of opportunities for financial advisers

Just under £1 trillion of assets are held via financial advisers in the UK, according to estimates by Platforum. Most of these advised assets are on-platform, but about a third of them are managed elsewhere. That’s a huge amount of value, but we think there’s still lots of potential for growth over the coming years.

The most accessible opportunity for advisers comes from existing investors, but not financial advisers’ current clients. Advisers don’t have a monopoly on retail investing – plenty of investment assets are held through wealth managers and direct to consumer (D2C) services like Hargreaves Lansdown.

The total UK retail investing market is £2.4 trillion in 2024, according to our estimates at Platforum, implying that financial advisers are responsible for around 40% of these assets. This proportion is gradually rising as more people recognise the value of financial planning.

The growth of financial planning doesn’t come at the expense of the wealth managers. Wealth managers are also integrating financial planning further into their services, either by acquiring financial planning capabilities or building them in-house.

The growth of financial planning doesn’t come at the expense of the wealth managers

Simultaneously, consolidators have been aggressively acquiring firms across the value chain, creating vertically integrated businesses that span advice, wealth management and platform services.

But there’s an even bigger opportunity for advisers to target and it’s sitting outside this £2.4 trillion retail investment universe.

Some £2 trillion rests in savings accounts and NS&I holdings: these assets typically sit idle in low-yield and often taxable savings products that fail to keep pace with inflation. Encouragingly, consumers are slowly beginning to recognise their need to shift these funds into more productive investments.

The signs are all favourable: the government wants more people to invest; the FCA is forever complaining that too many people have excessive amounts in savings and too little invested. However, converting savers into investors has always proven exceptionally hard – swathes of the population seem to find investing simultaneously too frightening and too dull.

DC workplace pensions are emerging as a huge opportunity for the sector, now with over £500bn in assets. The migration from DB to DC pensions is expanding the opportunity for retail intermediaries. An enormous pool of assets is accumulating in workplace schemes thanks to auto-enrolment – mostly, but by no means exclusively, in modest pots. Trust-based occupational pension assets grew by an impressive 25% in the 12 months to March 2024 – comfortably outpacing all retail investing segments.

Across aggregate UK savings, retail investments and workplace pensions, we’re looking at roughly £5 trillion of assets. Advisers are currently looking after about 20% of that total and there’s plenty more room for growth.

Tax changes are working in advisers’ favour. Shrinking tax reliefs and frozen tax thresholds dragging ever more millions in higher and additional rate are making tax planning even more valuable for clients.

Historically, investment engagement was highly correlated with age: our research suggests this link is breaking down

Demography is also on the side of financial advisers. Historically, investment engagement was highly correlated with age: younger people didn’t invest while older people did. Our research suggests this link is breaking down.

More retirees have retreated into savings accounts, because they now pay non-trivial rates of interest; while younger people’s experience of cryptocurrencies and COVID-19-lockdown share trading has left them more open to taking investment risk.

Most younger people don’t have enough assets to be of interest to financial advisers, but with the shift to DC pensions, more people will be accruing six-figure sums by their mid-to-late thirties – advisers might then sit up and take notice. Services will have to evolve to attract these younger investors. They will need to become more digital and have a greater focus on sustainable investing.

Intergenerational wealth transfer also opens up huge opportunities. Admittedly, many inheritors use their inheritances to pay off mortgages, use them for children’s education or even buy business or investment property. But there are plenty for whom stock market investing is really attractive – as it was to many of their forebears.

So, the intergenerational strategy doesn’t just mean better engagement with the heirs of current clients; it also requires changing the offering to make it more appealing to the next generation.

There appears to be no shortage of demand for advice, but supply is constrained. Our research finds that many advice firms are reaching capacity, while growth in the number of advisers is glacial. There’s continued pressure on percentage-based advice fees, which have been falling in recent years.

If advisers want to maintain or grow revenues, they are going to have to turn some of these opportunities into realities.