Why is the UK financial advisory profession at a crossroads?

0:12Welcome to the latest episode of Margin Notes with me, Simni Kiriakou, editor of FT Advisor. This year has all been about risk. And while much of our episodes on Margin Notes have focused on the risks that various events and problems might cause your clients, there are of course many business risks that might affect the financial advisor's own companies. And one of the biggest risks is perhaps how one adapts to this fast-paced, ever-changing economic environment where demographic trends, policy decisions and geopolitical events combine to present great challenges to advisors. In its latest white paper, Triplepoint is exploring why the UK financial advisory profession is at a crossroads.

0:55Shared exclusively with FT Advisor, for which we're very grateful, of course, the White Paper discusses how advisors can recognise some of the issues facing their business models today and how these can be turned into great opportunities for growth. Here to talk through some of the main themes of the paper is Rosalind Hudson. She's Retail Strategy Director of TriplePoint. Welcome, Ros. Hello. Thank you for having me. No, it's a pleasure. It's a pleasure. Before we get into it, just a reminder for CPD purposes that by the end of this podcast, you should be able to outline some of the challenges that face advisors, list ways that engaging the family can help with succession planning, and summarise the opportunities for growth that will be presented by the changes to taxation policy.

1:38So, Ros, this is a fascinating topic that TriplePoint has chosen for its white paper. in a nutshell could you outline why the UK financial advice industry might be at a crossroads yes of course and thank you again for having me there are several factors that are all taking place at once and first of all is as you mentioned demographic so we have a rapidly growing population of people in their late 50s and beyond and those people need their wealth to last longer than ever so financial advisors will be looking at moving from wealth generation to drawing an income from it we're also in a position where we have the great wealth transfer yes so we've all heard all heard those three words um but it's a you know big shift of wealth we predict it's around 5.5 trillion changing hands from one generation to the next and that's going to have a real impact on the industry.

2:40We also have consumer duty, of course, raising the bar on what good advice looks like. Meanwhile, targeted support is changing who can access advice and how and all while we have a huge advice gap in this country. So I think it's only about 9 % of adults in this country receive financial advice. and then we have hundreds of billions of pounds in the country sitting in cash accounts earning less than 1 % interest. So a huge amount going on, but for advisors that engage in all of these changes, there's a huge amount of opportunity. Absolutely. And we've seen ourselves, you know, that advice gap seems to be getting bigger when we are straight after RDR, when we're starting to pick the pieces up after RDR and pull everything together, So it was, say, 13 % of the working age population had advice, and now sort of 13 % of the adults had advice.

3:38Then it became 11%, and now it's 9%. And all the while, we're told that more and more people are seeking advice or needing advice because, as you say, the tax changes are coming in. Absolutely. They're sitting on cash accounts, but the government changes to, you know, whether they can leave loads of cash in their ISAs. That's all going to be changing. So it seems like people need the advice, but the advice gap is still growing so it feels like there's this huge dichotomy and then you obviously mentioned regulatory developments but we've also got technology yeah so all of these things going on it seems to have almost changed the advice landscape or perhaps changed what good advice might look like for millions of people yes absolutely so good advice is no longer you know making a suitable recommendation just at one point in time.

4:29Consumer duty requires advisors not only to help their clients with, you know, achieving their financial objectives, but also avoiding foreseeable harm and delivering good outcomes throughout the whole client advisor relationship. And a big part of this currently is risk, as you mentioned earlier. So it's about taking appropriate risk for clients, not being risk averse. And if you think about the, you know, the harm that being risk averse might cause a client, if you look at a 20 year period, if clients aren't taking enough risk, that can really impact, you know, how long their money is going to last.

5:11And in extreme cases, as we said, there's billions of pounds sitting in cash, earning, you know, less than 1 % interest and that's not being cautious. That's your money quietly devaluing against inflation. And so, yeah, being too cautious can be of detriment to the client. And a lot of that is inertia as well and perhaps people don't really know what to do with it. But I think for the first time we've now outstripped Germany in terms of how much we've got sitting in cash. Right. And they've always been a nation of cash savers. Now we've outstripped them with fewer people in our population than them.

5:47That's quite striking. And then we've also got this situation where we've got technology available to us and AI available to us that should help advisors and companies and providers maybe do more and offer more targeted support. But I don't really see that gaining a lot of traction yet. No, and I think the key thing for advisors to remember is it's the expectations of the generation that will be inheriting wealth over the next sort of 20, 30 years. And the next generation really does expect, you know, digital access. They expect really clear fees, fee explanations, and they expect, you know, real-time access to their portfolio holdings and their valuations and whatnot.

6:34So it is something that advisors should be engaging with. Yeah, definitely. Let's look at that sort of that next generation. We're seeing huge percentages of clients when they die, their families do not choose the financial advisor. And I've heard 67%, I've heard 72 % from various surveys. And if they're not retaining the advisor, if the spouse or the children are not retaining the advisor, that wealth then falls out of the advisor's oversight. and I mean we always hope that it goes to like another advisor and keeps it in the advised environment quite often but I just think it lands in cash as well so what what can we do you know how do we then stop advisors losing so many clients at the point where advice is most needed yeah I think that and the issue there is that the relationship is often just with one person so the advisor obviously has their relationship with their client but it doesn't tend to go much further than that and I think in our paper we found that only about 13 % of advisors have met their clients adult children only about 14 % of advice firms have a you know a plan in place to do intergenerational planning and to meet the family and I think to your point you're right We've seen that it's about 70 % of heirs tend to leave their parents' financial advisor.

8:03Often they'll have their own advisor already, but some may well not. And I think one thing that, you know, we really want advisors to think about is not necessarily that next generation, but it's the surviving spouse that often the wealth is passed to first. And the surviving spouse or partner tends to be a woman. And women we know very rarely stay with the family financial advisor. They often leave at that point where they need advice the most. And it's not a huge surprise because there are very few advice firms still that have strategies that are designed for female clients. And there are very, very few female advisors.

8:47And we think it's about 18 % there or thereabouts. and so yes it's those those women that are the the wealth is being passed to of course that uh yeah are leaving advisors in big numbers and quite often i've heard from financial advisors themselves that it's the eldest daughter or the unmarried child who then takes up the responsibility for you know managing the family's financial affairs or managing their mother's financial affairs so it worries me that only sort of 13 14 percent of advisors have actually met their yes adult children yes um and i take it that's whether they've met them online or in person it doesn't matter it's either way absolutely given technology exists it can't be that hard to set up a zoom call well no exactly you wouldn't have thought so and i think it is also to do with that softer piece and making sure that your client is happy for you to do that and for you to suggest that but if you don't ask the question you're never going to have that opportunity and I know personally I can speak to my parents own financial advisor and I've had conversations over the telephone she lives actually quite far away so us meeting in person wouldn't necessarily be that convenient but we've had some really productive conversations over the telephone and you know me being involved in some of those decisions has really given my parents a lot of comfort and you know myself and my family as well yeah because that means that your parents then understand what your expectations are or what your needs are what your thoughts are and I think a lot of parents we don't tend to talk a lot about finance and money anyway generally families don't share this kind of information you don't share your money worries with your and you also don't share the successes and then when it comes to when the children need to take it up they're not financially educated or they're not financially aware or they're not resilient enough even to have these conversations so I think that's I really like the idea of that and the paper goes into it doesn't talk about engaging the whole family yes so can we talk a little bit more about what engaging the whole family looks like for the advisor of the future yeah so it's about I think it's firstly when you're onboarding a client it's about mapping out who the family are um so not just who the client is but is there a partner is there a spouse are there children are there other dependents and it's really trying to gauge within that network um who influences decisions as well um it's about offering to bring in the partner or the spouse into meetings talking to that partner about their financial objectives about their concerns really understanding those two and then in time suggesting maybe bringing in the the children as well it's also about speaking to each generation in a way that resonates with them so in the paper we found that widows for example they value clarity confidence and warmth over too much technical detail.

12:04Younger generations, so sort of Gen Z and millennials value that digital access. They want real transparency over fees and they want strategies that align with their values. Whereas Gen X, and that's the generation that are likely to be inheriting wealth, are very busy. They're often working full-time jobs, looking after children, looking after parents as well. and they want no-nonsense advice. They want to know what they're paying for and why and they want it to all be very clear. Exactly. Well, as a Gen Xer myself, I can absolutely agree with that. And I think that's really interesting, thinking about the different ways that you engage with your clients.

12:45It's not just about doing the same thing that you've always done for all people. Everyone is different and everyone needs a slightly different tailored approach. And just like advisors are brilliant because they always say, well, there's no one-size-fits-all approach to portfolio planning or pension planning because every client is different. Well, just so that every client's family members are different and then the way you speak to them or the way you communicate or interact with them, that's going to be really different. So, yeah, I really like that aspect of the white paper. And then, you know, you mentioned earlier about the 5.5 trillion that's going to sort of be washing through the generation soon.

13:19Probably not my generation. There's not a lot of wealth above. But, you know, it's a great opportunity for younger people to perhaps get that money so they can get onto the housing ladder. But is it really such an opportunity for advisors? Because, you know, if a younger generation, if one of the Gen Xers, Gen Zers or millennials get a chunk of money and they might just want to buy a house. So maybe you don't need a financial advisor for that. So how can a financial advisor still sort of get those opportunities to carry on the advice? You're right. It's an opportunity and a threat at the same time.

13:58And I think it's all to do with how advisors are engaging with the family. There is very little evidence that all of this money that's changing hands is going into long term investments. We see the money going into, as you say, housing, paying down debt and often sitting in cash. but I think that just shows that at the point of inheriting that's when an advisor really can show the value they can add and if they've built those relationships with the family early enough to be able to be in the room when those decisions are being made they can help the next generation invest with confidence yeah and you know help them to think about their own income needs their own estates and so yeah I think it's really all about making sure that you have a relationship early on so that you can show the value that you're able to add once that money does pass down absolutely and then if you've helped the family get all the admin in place by getting the wills in place maybe power of attorney in place as well even if you're not doing that yourself in your business but you've provided those professional connections the family is going to feel less of a burden afterwards it's going to be less problematic for them A number of times my friends, my colleagues and advisors I've spoken to, they've met people who say, well, actually, I can't do anything because money is tied up in probate.

15:20Someone died without a will. I've had to engage lawyers. And it's just at the time when someone's very emotionally drained, they have to then think about lawyers and probate and chasing and fulfilling. And it's really, really difficult. So I think part of that engagement is also the financial advisor making sure that the administrative side of death and inheritance is as easy and simple as possible to reduce that level of stress on someone. Absolutely. I think once you've done that, then the financial advisor can be your financial health advisor at that time rather than just someone you call up in a panic, right?

15:52Well, frankly, someone you've never met whose name you don't know. You know, that's why it's just so important. Yeah, absolutely. So we talked a lot about that. We sort of touched on technology. We touched on Zoom. We didn't mention AI. Yes. But AI is big and it is coming. So what kind of, well, I mean, it's here, but agentic AI is coming. That does worry me. But what sort of new ways of doing things will advisors have to come to grips with? You know, we're approaching big tax changes, but we're also approaching this huge fluctuation in the technology space with AI just every day something new is happening.

16:33And it's almost hard to keep up with. Can we talk about technology first and then we'll come back to tax? We can finish with tax. Yes, of course. So I think in terms of technology, one thing advisors, as I said earlier, I think it's about modernizing your practice, making sure that you are offering the digital access and whatnot that clients expect. I think it's also being aware that given that AI has developed so much that there's so much sort of advice in quotation marks available to people just on their phones. And it's being really aware that that's not, you know, that isn't regulated financial advice and making sure that you're communicating really clearly with your clients that or your prospective clients that, you know, it is a regulated space that AI doesn't necessarily always spit out something that you can rely on and really that educational piece there.

17:29Yeah of course because we see new stories and we're guilty of writing them I know how young younger generations are using AI to manage their finances. Yeah that might be helpful in some ways to provide information but it does worry me that agentic AI may take that information and then just make those financial decisions on behalf of people. We just don't know how deleterious that's going to be for someone's financial well-being and certainly because it's not regulated. This is the big fear. I think, again, we need to be very clear that while advisors are busy looking at all the AI tools they can embed into their practices, it's got to be within this regulated frame of mind.

18:12It's got to be, how does this AI tool help me deliver the consumer duty outcomes? Because again, if it doesn't fit with what the regulator expecting you to do, it might make your jobs easier. Absolutely. It might save you time today, but it might cause you problems further down the line. Yeah, exactly. And of course, it's all changing so quickly. But let's turn to tax because the big changes to the taxation, the tax treatment of DC pensions is coming in. They're going to fall into the scope of IHT in April 2027. It's something that we're all talking about and all perhaps dreading. But this and many other tax changes that will probably come down the line are going to have a huge impact on how advisors live and work and have their being, aren't they?

19:02Can you talk about what your white paper is, you know, what's that, the sort of conclusions it's been coming to about that? Yeah, totally. So the changes that are coming in in April next year are huge, monumental. What we have found is that I think two thirds of adults in the UK don't even understand what these changes mean or mean for them. So I think the biggest thing for advisors to begin with is really that consumer duty piece. It plays into avoiding foreseeable harm. It's education. It's speaking to probably the majority of your clients now about their estate planning needs and clients that maybe you wouldn't have had to really discuss estate planning with before.

19:47So really speaking to people and explaining what these changes are going to bring. Yeah, absolutely. We've just published the results of our top 100 and top 50 boutiques. And it's amazing the number of firms, and some of them are really small firms, who have brought in 200 million, 240 million in gross new inflows over the past 12 months. Every single one of the ones that I've been able to speak to have cited more clients coming to us as a result of needing help with tax changes. Interesting. business clients well corporate clients worried about what's what's going to happen people looking at whether they can start investing in things like forestry because it might qualify for certain tax relief you know a whole range of things that perhaps people would never have considered before yeah and they're coming and these again i think it's quite nice because they seem to be what has been horribly referred to as the low-hanging fruit those people who do have the right amount of assets under yeah um sort of investable assets but never before taken advice they're now picking up the phone and calling advisors.

20:53Yes absolutely I mean there'll be so many families for whom their pension you know perhaps isn't something they're drawing down from and they had assumed that that would be a safe pot of capital to pass down to the next generation that's just not going to be the case anymore and I think it's going to prompt some really practical conversations so for clients that are looking to draw on their pensions now what do they want to do with that money that they hadn't been planning to take until now and that's why it's so important for advisors to really understand what all of their options are and to act early so if estate planning is something that they're going to be looking at now lots of estate planning options take time to work some take longer than others but yeah so you drawing your pension do you still want to retain control of that money and if so different estate planning options will be relevant to you business relief for example is one of those are you drawing money from your pension and now creating an income tax liability that you might want to look at or is your client's sort of default you know to leave the money in cash and again we've discussed why that's probably not an optimal or risk appropriate options so looking at other options in terms of you know where can i put money that's perhaps perhaps you know going to offer me a fixed return for a fixed duration of time um that's more risk appropriate for the client have we seen any clients doing anything unusual to try and spend i mean are they i remember when the pension changes came in one advisor had a frantic phone call from their client saying i want to buy a sheep with my i cash in my small db pot and don't want to buy newtie, I want to buy sheep.

22:43So that one stuck in my head very, very strongly. But, you know, have we had sort of people try and make knee-jerk reactions? Yes, I haven't heard about people trying to buy sheep. However, there's always one. There's always one. We do know that, you know, whenever there is talk about changes to taxes, especially with pensions, I mean, we saw a huge amount of people drawing money out of their pensions before the last budget. They weren't sure what was going to happen. And they thought, well, I best do this now. And then research shows that a lot of people wish they hadn't have done that and wished they'd have waited for a bit more certainty.

23:18So, yes, it's all about, you know, financial advisors, I suppose, going back to adding that value, giving clients comfort that they are the ones that are clued up. They know what, you know, options are out there and to really lean on them before they make these knee jerk decisions. Exactly. And having those communications with all the family members, as your paper says, engaging the whole family. So if we can sort of sum up the white paper, I know it's a lovely long white paper and we've been writing about it all week on FT Advisor. But if we could sort of maybe take three top tips that advisors should take away from it, what would be your sort of your three takeaways from this?

24:01Yes, I think probably working backwards. I think number one is really for advisors to engage with their sort of trusted professionals in the industry and make sure they're clued up on all of the estate planning options that are available to their clients. So really leaning on their professional connections. I think it's about making sure that they're engaging with their clients and the families of the clients as early as possible. And, you know, being visible so that when wealth does pass to the next generation, that they are somebody that the family knows and trusts. and I think it's also about that risk point making sure that you're taking appropriate risk for clients and not just cautious defaults that your clients might be you know perhaps more comfortable with but isn't necessarily good for them long term.

24:55Yeah absolutely and you know the one thing that's really stuck with me is something you said much earlier like if the client's families don't even know your name how are they going to trust you yeah and that could be as simple as just giving an email to your clients to send to their families and say this is my financial advisor or have a once a year quick zoom conversation absolutely you know just to have a conversation or um I know one financial advisor just finds out when the children or grandchildren are having their own life changes just make sure that there's a bunch of flowers in the post or a card just Well, it's those softer skills that, you know, some financial advisors are just so good at.

25:37It's about, you know, if there's a birth, sending a card. If there's a wedding, same thing, being engaged during retirement. So that when there is a bereavement, you know, they know who you are and you're familiar and they sort of there's some trust built up. Yeah, absolutely. Well, thank you very much. Sadly, that is all we have time for. But I just want to remind you of your CPD objectives. You should now be able to outline some of the challenges facing advisors, list ways that engaging the family can help with succession planning, and summarise some of the opportunities for growth that will be presented by changes to taxation policy and technological developments.

26:18So thank you, Ros, for talking to us today. Thank you so much for having me. And thank you all for listening. Until next time, take care.

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