Advice gap is widening because there’s too much for IFAs to do

0:00Music.

0:12Nearly 40 years since Big Bang, almost two decades since the VTEL distribution review, and 10 years since the Brexit vote, and we have a problem. The advice gap is only getting bigger. Indeed, as Britain increasingly sits on valuable property wealth, grapples with inheritance tax and worries about funding their later lives, we all feel the need for professional advice has never been clearer. But, is this merely anecdotal? What is the data actually telling us? Well, welcome to the FT Advisor Briefing, where we're going to examine some of this data. I'm Simini Kiriakou, editor of FT Advisor, and today we'll be taking a deep dive into what the latest data from Aviva is telling us about the advisory profession and what this might mean for you in the next 40 years.

0:58Joining me today is Lorna Worley, Director, Advisor Platform Wealth from Aviva. She will talk about the findings of the latest advisor research, which FT Advisor has been publishing this week, to showcase the challenges and the opportunities facing the profession. Welcome Lorna to Advisor Briefing. Thank you very much. Good. Well, let's start with it. Obviously, Adviva has been spending months going over this heap of data from the advisor survey you carried out. Could you talk a little bit more about why you wanted to do the research? I spend a lot of my time talking to advisors to understand the challenges that they're dealing with.

1:34We know that the advisor market is changing considerably. There's been regulatory change. There's been a lot of tax change coming, particularly next year. So there's a lot for advisors to navigate. They've got more to do. There's changing technology, which could potentially give them efficiencies. Clients' needs are changing. There's a lot going on, and we don't want to jump to assumptions. So we constantly talk to our advisors, and we wanted to do a survey to get some real stats around this to see what they're concerned about, where they're spending their time. And one of the sort of the key things from the stats was looking at the changing face of the IFA market.

2:14I think you badged it as vital statistics. And it was amazing to me to see the average age and breakdown of the ages of all the respondents. Not a single one was over 55. The majority were sort of millennials. Not that many Gen Xs, which I'm very sad to see. But again, not many under 35. So what does this tell us broadly about the shape of the advisor market? I think the advisors in the market are getting younger. We do need to bear in mind there were 250 IFAs in this research and so there could be a bit of bias towards those that chose to answer the survey. But generally we do know that the advisors in the market are getting younger.

2:56The age of the average respondent was 40, which I believe is younger than the average IFA in general. Yes. We know from the data that a big concern for advisors is around being able to secure future talent and talent pipelines. And they spend a lot of time investing in that. I'd like to think that they're starting to see some benefits from that coming through. And the average time in business from the respondents is six years, which, again, isn't really all that long. No, that's not. And it sort of chimes with some of the research that FT Advisor had been doing on its own readership. We found that the average age of our readers was 49 and the average length they'd been in business was slightly longer.

3:41I guess we were pooling sort of 30 ,000, 36 ,000 respondents in the data that we got from them. But it does seem very clear that as older advisors are retiring, they're wanting to sell their businesses. Are they selling to consolidators? Are they getting succession planning in place? And I think also what your data shows is that succession planning is quite a concern. Some of them have already started it. Some of them have not. and you know there's there's two elements of this succession planning for your business and how you hand your advisory business on and succession planning with your clients as well it's like the two sides of the same coin that advisors have to deal with that that's a those are big asks aren't they absolutely the number one concern in the survey from advisors is about recruitment difficulty in recruiting difficulty in recruiting diverse talent 76 percent of respondents agreed with that the majority will recruit from within but over 40 percent of them have got they're actively trying to bring new people in the industry through internships through work experience placements or over 70 percent of them have worked with like secondary education in order to raise awareness of careers in financial advice which I think is absolutely fantastic yes absolutely we need to to get them when they're young and go into schools and tell them that financial advice is a great profession to work in and that's sort of whether whether it's for boys or girls i think that's very very clear that's a really interesting thing for the advisors to be focusing on and it's clear from your data and from you know what we're hearing in the market they are worried about the next generation i think there's been a couple of new advisor academies launched quite recently and some new training programs so hopefully that'll accelerate but you know it feels quite small small steps at the moment but let's talk uh then move on to that second part of the succession planning the the advisor succession planning with their clients that's got a whole lot more difficult hasn't it it has obviously we've got the changes in inheritance tax coming into effect next year where pensions will become IH tubal and this is driving a lot of client queries around intergenerational planning and clients are also asking a lot about junior investment products.

6:04Some separate research that we've done shows 54 % of people would rather gift than leave money in inheritance. So that's understandable that advisors are getting many more queries about this. But it is true that nearly 60 % of clients will leave their wealth to their spouse or their partner. So that shows the importance of engaging with both partners. Absolutely. And it also shows the importance of writing bills because you've got to make sure that if you want to give something to the next generation, not just leave everything to your spouse or partner, you've got to have a proper will, proper probate sort of laid out.

6:45Otherwise, it's a nightmare at the moment to try and go through probate. It's taking sometimes weeks, sometimes months to resolve. 32 % of people have a will, according to some research that we've done. 32 % which is shockingly low yeah yeah I've done a well I've done well done me too but um yeah that's only because my old school alumni network decided to let us all have one for free so right yeah so um but but you know it does it does mean that you've got to actually take time to to sit down with clients and talk about these things I think another thing the survey brought out was that it's all happening everywhere everything all at once with advisors they've seen increases in queries about everything and they're more concerned than ever about everything IHT clearly being top of the pile but also just keeping clients client retention tax changes pension changes how what sort of sense do we get from the advisor market about how how this is making them feel advisors are busier for all the reasons that you've just outlined the increased regulation the tax changes clients becoming more engaged asking more questions clients being more concerned So we see in this data that the average minimum value of client that an advisor will take on now is£293 ,000.

8:04Wow. That's really big. That is significantly larger than the previous similar data that we have from five years ago. It suggests that this could have gone up four times. That's absolutely huge. And it's understandable because advisors need to really focus in on what they can achieve with their time. but this means that the advice gap is growing. And we've seen that in other data and other research as well. Now only 11 % of people in the UK have an advisor. That was 13 % just a few years ago. So all of this increased workload does result in the advice gap growing, unfortunately. Yeah, absolutely.

8:43And then there's a sort of retention gap as well because when money is passed to the spouse or passed on to children, quite often the children or the spouse will not stay with the same advisor. 70 % of the time, yeah, that's right. That's what the data says, that 70 % of advisors have lost clients when the partner has died because they've taken the money elsewhere. And that could be to another advisor. It could be gifting. It could be paying off debts or it could just be going into cash for people who are less risk tolerant. But it does seem a very concerning state of affairs because is it sort of a challenge then to advisors, like hold on to the clients, hold on to the next generation?

9:26And how do they go about doing that and having those conversations? That's a really important challenge I think they have to face. It's really important. And there is a big increase in the number of advisors who say that they have female clients. 77 % have said that they've had more female clients now than they did five years ago. and that that's a big number which is fantastic I mean obviously women are more wealthy in their own right now we've also said that the partner will get a lot through inheritance as well so that engagement with women and with both partners and with the children is absolutely key.

10:03You're absolutely right it's key and we've had this situation haven't we with the there's a CBR saying that 60 % of all the nation's wealth is going to be in women's hands by the end of this decade. I mean, that's a significant chunk of money that we're talking about. And it would be devastating if it all just ends up in cash or sort of gets sort of put into things that are unsuitable because the spouse or the woman receiving the money is just not, doesn't have a relationship with the advisor. Absolutely. And advisors are trying to engage with both parties. Over 70 % say they have an equal relationship with both partners, but then also a very high proportion say that they've have tried to engage but struggled to engage with a partner or with the children of the client and but then more encouragingly from other research we've seen that the appetite for advice from women is increasing so it potentially goes back to what you were saying about how advisors engage women and men have different engagement preferences They make decisions differently.

11:09So it is about asking questions, not making assumptions, talking about life goals rather than just investment goals, you know, adapting to the client and the situation. Yeah, absolutely. I recently spoke to a woman who heads up her own financial advice firm and I said, well, how do you meet this challenge then when perhaps the woman, the wife doesn't want to engage at all and just say, oh, no, I leave all that to my husband. She said, well, then I stopped talking about money to her. I turn around and I say to her what are your biggest concerns about your children let's put the finances up what are your biggest concerns about your children what do you worry about for them what about your grandchildren and then by teasing that kind of information out she then says that she's got building up a relationship because then the woman, the wife feels like there's a conversation that they can have suddenly that person's aware oh actually I might need some financial planning to help provide some sort of lifetime gifts to my children but I do want to have something to live on in later life should the worst happen.

12:09But again, it's that difference of conversation, isn't it? It's not an easy task because we're switching and every single person, every human is different and you have to approach things in a different way but still remain compliant. Absolutely. And there are an increasing number of female advisors and we know through research that female advisors tend to have more female clients than male advisors do. so by continuing to invest in talent and bringing new talent into the business more diverse talent then hopefully that will continue to increase the number of female advisors and therefore female clients as well and then we're talking about the great wealth retention rather than the the great wealth transfer um but let's look at um those sort of that work that ifas have to do in the survey it showed that on average advisors conduct client reviews more than five times a year that's huge considering you know the current sort of regulation and I know the regulation is starting to change in this area but that's 93 percent of advisors are conducting reviews more regularly you know this is a big ask for them yeah and again not surprising with everything going on at the moment, clients having more questions, advisors having to adapt a client's portfolio more because of the changing environment.

13:31And I imagine that over five times a year, which is what advisors have said they're having on average for reviews. I imagine a lot of that's client contact. It can't be for reviews, but either way, it's an awful lot of work for them to do. And then, and that's what we've said means that they're having to focus on those higher value clients the more complex clients who will have more queries yeah and that takes longer especially when 46 percent of them were doing face-to-face meetings with clients that's that's a lot of work whether the clients are coming into your office or you're going to them that's still significant chunk of time in the day it is but again that statistic is it's changed quite a lot as well over the last few years so we did some consumer research that said that two-thirds of clients would be happy with online meetings.

14:19And then we know from this more recent survey that 32 % of advisors is doing all or at least half of their meetings digitally. And that's a great indication of advisors using technology for efficiencies. And then we also know that 36 % of them are attracting new clients through social media. That's now more than word of mouth. That's good. Which is really interesting. So again, another great technology efficiency. And then you've got AI. 75 % of advisors said that they're getting benefits and efficiencies through AI. It's really encouraging. Absolutely. And so let's go on to that technology because it looks like in this sense, given the findings of this research, AI and technology are seen as the advisor's helper, the advisor's assistant, rather than something that's coming to take our jobs.

15:09Yes. There's so much opportunity for AI. And when we think about the advice gap, there's a real way that advisors can create efficiencies in order to potentially, if they want to, start taking on more clients that don't necessarily have to have the highest balances. But also for those consumers who have lower balances and less complex situation, you can see how they need a lot less human interaction. and so there is the potential for different types of advice models utilizing AI there for less complex needs and that's that segmentation isn't it you know based on life stage and based on value to business yes absolutely yeah I think we're going to have to see a lot more of that and if advisors are sort of advising down the generations and doing succession planning maybe the grandchildren are probably the least value clients at this moment but they could become the most valuable clients in sort of 5, 10, 15 years.

16:05So again, you want to keep them on board. Maybe it is sitting down with them, just having a 20 minute phone call about a junior ISA or a junior SIP. And then later on in life, you can kind of get, hopefully keep them in your company. Yeah, but young people are more engaged in their finances nowadays, thanks to social media. I mean, what they're engaging with isn't necessarily the right thing. No, it should be ftadvisor.com. absolutely they're not engaging in financial education particularly you know they're engaging in potentially get rich quick type schemes but either way engagement is growing so there is a role there for us in financial services to make sure that we are helping with education so to turn that engagement into knowledge and into a thirst for increasing their wealth yeah i had a A fund manager said on the Asset Allocator podcast the other week that he doesn't mind so much to hear that young people have followed some thin fluencer, put all their money on a stock and then lost it.

17:11And while that was shocking, he went on to say, because that young person will then realise they can't do it themselves and it will turn more people towards professional advice. So I'm hoping that that is true because the idea of people losing stuff because they've just bought into a get rich quick scheme is a difficult task, but hopefully it does, again, push people towards financial advice. And of course, you've got targeted support coming in, which isn't in your excellent survey, but targeted support hopefully will help clear up some of that advice gap. Yes, definitely. Well, Lorna, thank you very much for coming in to talk to Advisor Briefing today.

17:48Thank you for inviting me. Now, I know we could be discussing the findings of this research for a lot longer, but listeners, you can all read about it on ftadvisor.com. All the stories are there. once again thank you to Lorna for coming in and thank you all for listening until next time take care

18:21still waiting in line again That's time you will never get back. Save time and money with Stamps.com. Over 4 million businesses have skipped the line with Stamps.com. Join them to save up to 90 % off carrier rates from your computer or phone right now. Print postage for certified mail, registered mail, and packages in seconds. Then schedule a pickup right from your home or office. For a limited time, go to Stamps.com and use code PODCAST for a free welcome gift. Taxes and fees apply.

18:51Lorna Whalley: Your team just added its 67th AI tool and also your 67th security blind spot. The good news? The Vanta agent works like a GRC engineer in the background, finding every app your team uses, scoring the risk, and drafting fixes for you. Vanta is the platform used by over 16 ,000 fast-moving companies like Ramp, Cursor, and Harvey, who are shaping the future with AI and staying ahead of AI risk. Get started at Vanta.com.