New regulations forcing advisers to move upmarket

19th December 2024

The annual Scottish Widows Investor Confidence Barometer has revealed that regulatory changes are forcing advisers to seek larger clients.  

Since the removal of the Lifetime Allowance (LTA), 79%^** of surveyed advisers report that ongoing tax and regulatory changes are affecting their business operations. In response to rising compliance costs, advisers are pivoting towards clients with larger portfolios.

Just over half of those surveyed (51%) have increased their minimum portfolio size in the past year, with the average minimum portfolio now at £117,000 — rising to £134,000 for firms with over £500 million in assets under management (AUM), according to the Barometer. In the last Barometer, the average minimum portfolio size stood at just over £100,000, representing a 17% increase in just a year.

Mixed reaction to changes

Adviser sentiment around changes to regulation has been mixed. Around half (48%) of surveyed advisers believe that regulatory and tax changes have positively affected their ability to add value for clients, specifically citing changes to Consumer Duty and LTA. However, 81% of advisers report a negative impact from regulatory and tax changes on their workloads, while 68% surveyed report a negative impact on the cost of doing business.  

Advisers and investors breathed a sigh of relief when the rumoured reduction in tax-free cash did not materialise in October’s budget. Of those surveyed, around three-quarters (72%) of advisers cited this policy as the one they would have been least supportive of.  

The introduction of the Sustainability Disclosure Requirements (SDR) has sparked mixed reactions: 43%^** of advisers find the new sustainability labels helpful, while 30%^*** do not.

Future of advice will be digital

Advisers are also facing generational challenges, like the great wealth transfer and a stubborn advice gap. The Barometer shows that technology could play a pivotal role in meeting these challenges by increasing the supply of financial advice. Nearly two-thirds (61%) of surveyed advisers agree that improvements in technology will enable them to look after more clients in five years.  

With 74% of surveyed advice firms either already using AI tools or are interested in doing so, the report also highlights optimism around the potential technology has to meet generational challenges like the advice gap. 

More than a third (38%) of firms surveyed are currently using or testing AI tools, while 46% have not yet adopted AI but are interested in using it. Where large firms lead, smaller firms often follow - with 50% of surveyed advisers from firms with more than £500 million AUM interested in adopting AI tools, their use in the industry could be set to rapidly increase. 

Despite these advancements, both advisers and clients agree that a human touch remains essential in the advice process. Three quarters (76%^**) of surveyed advisers believe that digital-only models could weaken the value of financial advice. This sentiment is shared by a majority of surveyed advised consumers, who prefer face-to-face interactions over phone conversations, video calls, and app interactions, for pivotal moments, such as providing personal financial details (37%), discussing risk tolerance (37%), conducting annual reviews (45%), and planning for significant life changes (45%). 

“While regulatory change has brought with it added complexity and increased workloads, advisers have proved themselves to be flexible and adaptable. Significant shifts, such as the removal of the Lifetime Allowance, also gave advisers an opportunity to showcase to clients the value of advice.  

“Our research clearly demonstrates that technology will be crucial to address the key challenges facing the industry, namely the advice gap and the great wealth transfer. We recognise this and that’s why we’re investing £150 million over the next three years to enhance our platform and help set advisers up for success, so that they can deliver real value to their clients.”

Ross Easton, Head of Platform Proposition, Scottish Widows Platform 

Download full press release (PDF, 117KB)

Notes

* 'Very positively’ and ‘Somewhat positively’ answers combined.

** ’Strongly agree’ and ‘Somewhat agree’ answers combined.

*** ’Strongly disagree’ and ‘Somewhat disagree’ answers combined.

Notes to editor

The Scottish Widows Investor Confidence Barometer is a twice-yearly survey of over 1200 people conducted by Censuswide and Research in Finance for Scottish Widows Platform, which surveyed the following groups between the 16th and 27th September 2024: 

• 501 advised consumers (those that have a financial adviser) with a minimum of £100k investible assets, who have a pension and are aged 35-70. 
• 500 non-advised consumers (those that do not have a financial adviser), with a minimum of £100k investible assets, who have a pension and are aged 35-70. 
• 200 (18+) financial advisers who have clients, with a representative split by age of the UK adviser population.

About Scottish Widows

Founded in 1815, Scottish Widows is part of Lloyds Banking Group, the UK’s largest digital bank and financial services group. With over £200bn assets under administration and 10 million customers, Scottish Widows’ award-winning product range includes workplace and individual pensions, annuities, life cover, critical illness, income protection as well as savings and investment products. 

The Scottish Widows Platform is a digital platform for financial advisers, which brings together cutting-edge technology, market-leading tools, and an award-winning service and support team. The platform has around 6,000 mutual funds available from more than 100 fund managers, as well as a wide range of listed stocks, shares, ETFs, and Investment Trusts via a fully integrated dealing solution. The Scottish Widows Platform is provided and administered by Embark Investment Services Limited, a wholly owned subsidiary of Embark Group Limited.