Advice firms have had a lot to contend with in 2024: a deluge of regulation, a change of government leading to uncertainty over financial policy and the threat, or opportunity, of artificial intelligence hanging over their heads.
I won’t go into too much detail on regulation, as my colleague Dan Cooper has crafted a comprehensive round-up here.
But a couple of pieces of regulation of particular note are the next steps for the Advice Guidance Boundary Review and the outcome of the regulator’s first review of Consumer Duty board reports.
On the former, the Financial Conduct Authority has decided to look at targeted support for pension savers in the first instance.
This is widely regarded to be a sensible move by the regulator.
Lang Cat consulting director Mike Barrett told me, when I spoke to him for a cover feature on the topic, that it’s a “nettle that needs to be grasped”.
“Pension decisions are complex, often irreversible, and can have significant financial implications,” he said.
“Many consumers make costly mistakes, like withdrawing their entire pot and paying unnecessary taxes. The regulatory environment doesn’t allow those providers to say, ‘Whoa! You’re taking 100%. Do you realise you’re going to pay more tax?’”
Noise around consolidation seems to have died down, but I am reliably informed that it is still going on at pace
On the latter, the FCA said, in its review of the first Consumer Duty board reports, that it has found some issues around the quality of data provided by firms to evidence good practice.
This is one thing that has been spoken about a lot in relation to the Consumer Duty. It is all very well saying you are already doing the right thing for clients, but you have to be able to evidence it.
MorganAsh managing director Andrew Gething said the review is yet another reminder of the “crucial role” that good-quality data plays in meeting the FCA’s requirements and demonstrating compliance.
He said robust data is the “cornerstone” of the Consumer Duty.
“With the right systems and processes in place, firms can monitor outcomes throughout the lifetime of products, make necessary improvements and then report on their findings,” he insisted.
One of the big themes for advice firms in 2024 was, unsurprisingly, consolidation. In my end-of-year article looking at the world of advice last year, I focused on it heavily.
Noise around this topic seems to have died down in recent months, but I am reliably informed that it is still going on at pace.
What is more, conversations are turning to the next phase of consolidation, as large consolidators and aggregators start to look at buying each other.
There are currently 34 venture-capital-backed consolidators in the advice space.
Many market commentators believe that, as more advice businesses are bought up and the pool of vendors shrinks, consolidators may start to cannibalise each other to grow rapidly.
19% of advisers expect to incorporate AI into their advice process within a year
Radiant chief executive Simon Cogman-Hellier has insisted that this is an “inevitability”.
“If you look at other industries that have gone through consolidation, you end up with several companies entering the market,” he said.
“That then collapses down to six or 10, or something of that nature. I think that will happen in financial advice over the next five years or so.”
He is not the only one who believes this is coming.
NextWealth consulting director Emma Napier recently told me she thinks it will happen, although it will not be a “great big turn” for the industry.
And it is something Gunner & Co managing director Louise Jeffreys has said will no doubt happen in the future.
This, she suggested, is because their private-equity backers are “going to get fed up” and use it as a way to increase scale and exit.
In light of a predicted ramp-up in the space, the FCA this year launched a review of consolidation.
It believes that, as consolidation evolves and increases, regulatory intervention may be needed to ensure Consumer Duty expectations are met.
Another hot potato in financial advice world is that of artificial intelligence.
The narrative has now switched from ‘AI will have us all out of a job’ to ‘AI will help us become more efficient’. Essentially, advisers are starting to use AI to take the “heavy lifting” out of their roles and allow them to focus more on the human side of financial planning.
Every year we say things will quieten down next year. I’m going to break the cycle and say things will ramp up next year
A recent report published by Schroders found that a fifth (21%) of advisers say they have already incorporated AI into their businesses in some form.
Meanwhile, 19% of advisers expect to incorporate AI into their advice process in some way within a year. A further 41% said they intend to in the next two to five years.
Only 10% expect to never use AI, dramatically down from the 27% who said they would never use AI in May 2023.
The threat of AI taking jobs has not gone away. And it will likely target admin-heavy roles first. But most commentators agree that financial advice will always need a human side. So until AI becomes human – which, I hope, will never happen – advisers are probably safe.
So, what about 2025?
Every year we say things will probably quieten down next year. This year, I’m going to break the cycle and say things will probably ramp up next year, as the responses to countless discussion papers and consultation papers are published and the FCA takes forward the numerous regulations it has dropped on the financial-advice profession.
Lois Vallely is chief reporter at Money Marketing
