Table of Contents
Executive Summary
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- Impact of COVID-19 on the financial advice market
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- Figure 1: Short-, medium- and long-term impact of COVID-19 on the financial advice market, March 2021
- The market
- Firm numbers stabilise
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- Figure 2: Number of regulated retail intermediaries, by category of firm, 2016-19
- Retail intermediaries generated £24 billion in revenue in 2019
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- Figure 3: Number of regulated retail intermediaries, by category of firm, 2016-19
- Most retail investment revenue comes from adviser charges
- 94% of firms were profitable in 2019
- Impact of third national lockdown not as severe as the first
- Companies and brands
- A highly fragmented market…
- …populated by numerous small firms
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- Figure 4: Number of financial adviser firms and staff advising on retail investment products, by size of firm, 2019
- Many mortgage brokers are sole traders
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- Figure 5: Number of mortgage brokers and staff advising on mortgage products, by size of firm, 2019
- Automated advice market still has a way to go
- First digital IFAs emerge
- FCA wants to encourage further innovation
- The consumer
- Half of the UK adult population have never sought professional advice
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- Figure 6: Product/area sought professional advice on, December 2020
- Age is a key determiner
- Just over a third of those who’ve sought advice last did so within the past 12 months
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- Figure 7: Proportion of adults who have sought advice on particular products/areas in the past 12 months, December 2020
- Advice takers are generally loyal
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- Figure 8: Agreement with statements about taking professional advice, December 2020
- 68% of adults in the UK would take up the offer of a “free consultation”
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- Figure 9: Financial products/matters would most like to receive professional advice on, December 2020
- Channel preference varies with age
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- Figure 10: Preferred channel for free consultation with a financial adviser, December 2020
- Fixed-fee model is simple and appealing
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- Figure 11: Factors that would make people seek financial advice, December 2020
- 46% of adults would be willing to pay for advice…
- …but few would pay more than £500 for one-off advice
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- Figure 12: Amount willing to pay for one-off advice, December 2020
- A third of under-35s feel they are not in control of their finances
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- Figure 13: Agreement with statements to assess financial capability and advice needs, December 2020
- 45% of adults are willing to consider using an online adviser
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- Figure 14: Agreement with statements about online financial advisers, December 2020
Issues and Insights
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- COVID-19 pandemic has brought challenges and opportunity
- Advisers need to actively promote free “no obligation” consultations
The Market – Key Takeaways
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- COVID-19 has stemmed the recent growth in intermediary firms…
- …but has also created new opportunities
- Many firms have experienced a drop in income
- Demand for investment advice will increase, as savers look for better returns on their cash
- Regulator wants more firms to innovate to help bridge advice gap
Size of the Intermediary Market
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- Most firms are weathering the storm and looking to take advantage of new opportunities post-crisis
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- Figure 15: Short-, medium- and long-term impact of COVID-19 on the financial advice market, March 2021
- Firm numbers stable in 2019
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- Figure 16: Number of regulated retail intermediaries, by category of firm, 2016-19
- Insurance intermediaries generate the lion’s share of industry revenue
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- Figure 17: Total retail intermediary revenues, by category of firm, 2016-19
Market Segmentation
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- A diversified business model improves sustainability
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- Figure 18: Total retail intermediary revenues, by type of firm and business, 2019
- Figure 19: Proportional distribution of retail intermediary revenues, by type of business, 2019
- Over 80% of investment income is now generated by fees and charges
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- Figure 20: Proportional distribution of retail intermediary revenues, by charging method and type of business, 2019
- Majority of financial adviser firms are profitable…
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- Figure 21: Financial adviser firms’ average profit margins, by size of firm, 2019
- …and independent
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- Figure 22: Financial adviser firms, by type of advice and value of adviser charges, 2019
- Income from ongoing charges grew strongly in 2019
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- Figure 23: Financial adviser firms’ revenues, by charging basis, 2019
- Financial advisers serve nearly 3 million clients on an ongoing basis
Market Drivers
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- Impact of latest lockdown on advisers’ working practices will be modest…
- …although difficulties attracting new business will persist
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- Figure 24: Percentage of firms experiencing or expecting a decrease in net income due to the coronavirus pandemic, by sector, June-August 2020
- Many financial firms have been negatively impacted by pandemic
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- Figure 25: Percentage of firms experiencing or expecting a decrease in net income due to the coronavirus pandemic, by sector, June-August 2020
- Stock markets buoyed by positive vaccine news
- Banks told to prepare for negative interest rates, despite the threat decreasing
- House-purchase loan sector puts in a strong performance…
- …largely thanks to the stamp duty holiday…
- …but health crisis contributed to lower remortgaging activity in 2020
- Mortgage brokers welcome stamp duty holiday extension
- Intermediaries transact the lion’s share of mortgage business
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- Figure 26: Number of regulated residential mortgage sales, by sales channel, 2013-19
- Many mortgage brokers sell protection insurance
- Investible assets accumulate with age
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- Figure 27: Approximate value of investible assets, by age, December 2020
- Many over-65s still have pension savings to draw on
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- Figure 28: Approximate value of pension savings, by age, December 2020
Regulatory Context
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- The financial advice gap persists
- FCA launches Advice Unit to support development of automated advice services
- More innovation is needed to help close the advice gap
- Investment Pathways could ultimately increase demand for retirement advice
- New mortgage rules introduced to make execution-only sales channels more accessible
Companies and Brands – Key Takeaways
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- Pre-pandemic, advice firm numbers were stable…
- …but likely fell in 2020
- Robo advisers seek the personal touch
- Digital IFA market has huge growth potential
Competitive Environment
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- Around 12,000 firms serve the UK’s retail advice market
- Financial adviser population grew in 2019
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- Figure 29: Number of firms and staff advising on retail investment products, by type of firm, 2018 and 2019
- Most financial adviser firms are small enterprises
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- Figure 30: Number of financial adviser firms and staff advising on retail investment products, by size of firm, 2019
- Increased cost and regulatory pressures lead to more firms deauthorising
- Number of firms offering mortgage advice grew by 1% in 2019
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- Figure 31: Number of firms and staff advising on mortgages, by type of firm, 2019
- Most mortgage intermediaries operate at a local level
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- Figure 32: Number of mortgage brokers and staff advising on mortgage products, by size of firm, 2019
- Around 5% of insurance intermediaries generate over £10 million in annual revenues
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- Figure 33: Number of insurance intermediaries, by size of firm based on average revenues, 2019
Launch Activity and Innovation
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- Innovation has largely centred on automated guidance services…
- …where making a profit is not guaranteed
- Some robo advisers have branched out into more personalised advice
- Barclays launches Plan & Invest
- First digital IFAs launched in the UK
- Fintuity
- MyEva
- Many traditional IFAs are making greater use of digital channels as a result of the pandemic
- Online mortgage brokers continue to emerge and innovate
- Habito Plus
- New entrants
The Consumer – Key Takeaways
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- Few adults seek expert financial advice on a regular basis
- Fee transparency helps to foster trusted client relationships…
- …while a fixed-fee model could bring on board new clients…
- …along with free no-obligation initial consultations
- Many under-35s recognise the value of using a professional adviser…
- …and are more willing to pay for advice
- Huge scope to expand the online advice market
Impact of COVID-19 on Consumer Behaviour
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- Under-35s are most likely to be finding it hard to make ends meet…
- …but 37% of them are focused on building up their savings
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- Figure 34: How consumers have been affected or changed their behaviour as a result of the outbreak, by age, week commencing 26 January 2021
- Almost as many are better off as worse off compared to a year ago…
- …but a significant minority of over-55s are feeling worse off
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- Figure 35: Trends in financial situation compared to a year ago, by age, January 2021
- The pandemic has increased demand for holistic services
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- Figure 36: Own definition of financial success, by age, July 2020
- 44% of under-35s are keen to be early adopters of new technology
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- Figure 37: Agreement with statement “I like to be amongst the first to try technologies”, by age, July 2020
- 86% of over-55s say it’s vital that companies protect their personal data
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- Figure 38: Agreement with statement “It is important to know that companies protect my personal information”, by age, July 2020
What Consumers Seek Financial Advice About
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- Half of all adults have sought professional advice on a financial matter
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- Figure 39: Product/area sought professional advice on, December 2020
- Over-55s comprise the core market for pension and investment advice
- Mortgage advice is the most commonly sought
When Last Sought Advice and Method of Payment
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- The pandemic has increased demand for advice…
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- Figure 40: When last sought advice, by product/area, December 2020
- …albeit from a very small base
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- Figure 41: Proportion of adults who have sought advice in the past 12 months, by product/area, December 2020
- Many consumers are confused about how they pay for mortgage and insurance advice
- There’s greater clarity over investment advice charges
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- Figure 42: How paid for advice, by product/area, December 2020
Attitudes and Behaviours of Advice Takers
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- Transparent charging models help to foster client loyalty
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- Figure 43: Agreement with statements about taking professional advice, December 2020
Identifying Advice Needs
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- 68% of adults have an identifiable advice need
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- Figure 44: Financial products/matters would most like to receive professional advice on, December 2020
- Latent demand for specialist advice is notable
- Under-45s more likely to favour remote channels
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- Figure 45: Preferred channel for free consultation with a financial adviser, December 2020
- A mixed channel approach is the way to go forward
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- Figure 46: Preferred channel for free consultation with a financial adviser, by product/area of interest, December 2020
Advice Triggers
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- One in eight adults would be more inclined to seek advice if charged a fixed fee
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- Figure 47: Factors that would make people seek financial advice, December 2020
- Video consultations and account aggregation services would help to drive interest among under-45s
Willingness to Pay for Advice
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- Three fifths of under-35s are prepared to pay for expert advice
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- Figure 48: Willingness to pay for advice, December 2020
- Most people are unwilling to pay over £500 for one-off advice
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- Figure 49: Amount willing to pay for one-off advice, December 2020
Financial Capability and Advice Needs
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- Under-35s are currently under-served by the advice market
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- Figure 50: Agreement with statements to assess financial capability and advice needs, December 2020
- Many people find pensions and investment confusing and rely on free ‘guidance’ sources
Attitudes towards Online Financial Advisers
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- 45% of adults would use an online adviser
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- Figure 51: Agreement with statements about online financial advisers, December 2020
- Many adults are attracted to the convenience of online advice…
- …especially under-55s
Appendix – Data Sources and Abbreviations
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- Abbreviations
- Consumer research methodology
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