The wealth advisory industry is undergoing significant change, driven by consolidation, developments in the model portfolio solutions (MPS) and discretionary fund manager (DFM) space, the rise of direct-to-consumer (D2C) platforms and the advice gap. What does this mean for the future of the wealth advisory industry? We take a look at the UK market for clues.
Consolidation
Consolidation is reshaping the wealth advisory industry, including in South Africa. In the UK, there has been a flurry of mergers and acquisitions, with over 300 deals in the past three years, and 133 in 2023 alone. This wave of consolidation is driven by the need for scale, regulatory pressures and the desire to capture a larger share of the market. However, while consolidation can lead to fewer major players, it also results in the emergence of new firms spun out from consolidated entities. This dynamic should ensure that the industry remains diverse and competitive.
Consolidation can benefit clients by potentially lowering costs. However, the impact on clients varies depending on the practices of the consolidating firms. For instance, some clients may prefer the personalised service of smaller, independent advisors over the scale advantages of larger firms.
The role of technology
Tech is playing a transformative role in the wealth advisory industry. The rise of digital platforms and artificial intelligence (AI) is revolutionising how financial advice is being delivered. Technology can streamline administrative tasks, reduce overheads, and enhance client engagement. Caution is advised, however, as the industry must balance these tech advancements with the need for personalised, human-centric advice.
On the growing importance of D2C platforms, Hargreaves Lansdown, the UK’s largest wealth manager, has seen significant growth in its D2C business, and now manages close to £150 billion in assets. This shift towards D2C platforms reflects a broader trend of consumers seeking more control over their investments and the convenience of digital solutions.
Addressing the ‘advice gap’
One of the critical challenges facing the wealth advisory industry is the so-called ‘advice gap’. This gap is partly due to the high costs and regulatory burdens associated with providing financial advice. But while more people than ever need advice, regulation, and the pressures of the advice industry versus consumer needs are not necessarily well-matched.
The advisory industry must adapt to the diverse needs of clients, ranging from those seeking formal advice to those preferring self-directed investment options. Bridging the advice gap requires innovative solutions, such as leveraging technology to provide scalable, cost-effective advice.
The impact of regulatory changes
Regulatory changes are another significant factor influencing the wealth advisory industry. The introduction of the Consumer Duty by the Financial Conduct Authority (FCA) in the UK aims to prioritise client outcomes and enhance transparency. This regulation requires firms to demonstrate that they are delivering good outcomes for clients, which includes fair pricing, clear communication, and robust risk management.
While regulatory changes can increase compliance costs, they also present an opportunity for firms to differentiate themselves by building trust and delivering value to clients. As an example, Hargreaves Lansdown has focused on understanding what clients value beyond just performance, such as trust and empowerment, to ensure compliance with the Consumer Duty.
The future of the wealth advisory industry
The wealth advisory industry seems poised for continued evolution. Here are a few notable trends that will shape the future of the industry:
- Increased competition and fragmentation
Despite consolidation, the industry will remain fragmented, with opportunities for both large firms and boutique operations to thrive. - Technological advancements
The adoption of AI, machine learning, and digital platforms will continue to transform how financial advice is delivered, making it more accessible and efficient. - A focus on client outcomes
Regulatory changes will drive firms to prioritise client outcomes, leading to greater transparency and trust in the industry. - Evolving client needs
As clients become more sophisticated and demand personalised solutions, firms will need to adapt their offerings to meet these changing needs. - Women and investing
Statistically, women live longer than men but retire with 30-40% less money. They are also the most unadvised segment and represent a huge gap in the market.
Firms that can effectively leverage these trends while maintaining a client-centric approach will be well-positioned to succeed in this dynamic landscape.
