Schroders UK Financial Adviser Survey 2023

The 2023 Schroders UK Financial Adviser Survey has found that clients have become increasingly bearish as the year has progressed, despite interest rates stabilising and inflation starting to fall. The highest concern by some margin for advised clients, is the prospect of losing capital, with 59% ranking this as their number one worry.

This is likely to be driven by geopolitical concerns, with 66% of the advisers surveyed expecting a higher level of disruption due to geopolitics going forward. The cost-of-living crisis continues to be a key influence, with 89% of advisers reporting that some of their clients have adjusted their portfolios as a direct result.

These ongoing concerns may be driving an increased number of advisers to have conversations with clients on merits of cash versus long-term equity investing. For example, whilst the Schroders UK Financial Adviser Pulse Survey conducted in May this year found that 90% were already engaging with clients on this matter, today’s Survey finds that this proportion has now risen to 95%.

In terms of the specific challenges facing advisers, almost half (49%) cited regulation as their main concern, up from a third (32%) in November 2022. This likely follows the introduction of Consumer Duty, which came into effect in July this year, but perhaps also in anticipation of the outcome of the Retirement Income Review and the numerous ‘Dear CEO’ letters.

The proportion of advisers who think Consumer Duty will have a high or reasonably high impact on their business shifted significantly from 25% in May to 41% with a corresponding reduction in advisers thinking that this will have a low impact.

Additionally, the survey revealed that 69% of advisers anticipate that the Consumer Duty's 'fair value' outcome will exert pressure on ongoing charging models. These statistics highlight the growing recognition and understanding of these regulatory changes, underscoring the ongoing commitment needed to effectively implement the requirements.

Wealth transfer

The previous three surveys have identified a growing proportion of advisers concerned their businesses could lose assets as wealth transfers between generations, with the number now standing at 63%, up from 54% in May 2022.

However, despite the growing industry awareness of the risks and opportunities associated with intergenerational wealth transfer, attracting younger clients is not a top priority for the majority of advisers. This is evident from the aging profile of their client bases and the fact that only 25% of advisers would provide advice to clients with less than £50k to invest, a steep decline from 52% in 2019.

In addition, only 10% of advisers reported having a strategy for retaining, attracting and advising women. It is crucial advisers do not overlook their female clients, with recent research from Schroders indicating only 34% of widows will remain with the existing family adviser.

Artificial intelligence

The pace of Artificial Intelligence (AI) development is rapidly accelerating, and this is evident in the shifting views and perspectives of advisers on the subject. The percentage of advisers anticipating greater disruption caused by technological advancements has increased from 30% in November 2022 to 46%, underscoring the growing influence of AI.

However, there has also been a significant rise in the number of advisers who view AI as an opportunity rather than a threat, with 70% now embracing its potential compared to 57% in May. This suggests that more advisers are recognising the possibilities that can be unlocked by harnessing its capabilities. In line with this growing acceptance, 85% of advisers anticipate incorporating AI-based technology applications into their advice process in some capacity in the future.

Outsourcing

Advisers are increasingly relying on outsourced investment solutions to manage their clients' assets. Currently, 36% of advisers outsource more than half of their clients' assets under management, while 49% outsource more than a quarter.

Looking ahead, 27% of advisers expect to further boost their allocation to multi-asset funds in the next 12 months and 25% to Model Portfolio Services. Advisers continue to primarily consider performance, followed by cost and investment process when selecting an outsourced investment solution.

Gillian Hepburn, Commercial Director, Benchmark, commented:

“The Schroders UK Financial Adviser Survey continues to offer valuable insights to help track and evaluate the opportunities and challenges faced by advisers, as well as demonstrating the value of advice, whether this is having conversations about cash versus long-term investing or navigating through challenging markets.

“It is also intriguing to note the impact of Consumer Duty since its implementation and how advisers are starting to respond, adapt and understand its impact. We anticipate this to be an ongoing focus for advisers as they continue to review good practice and refine their own work in this area, particularly in the area of ongoing assessment of value using customer feedback.

"This year’s research has also highlighted the significance of two topics; the transfer of wealth and the impact of AI. While AI appears to have gained interest among advisers and a desire to understand the opportunities, the potential impact of wealth transfer is now recognised. However, according to the survey, advisers are still primarily focusing their efforts on older, wealthier clients, rather than broadening their scope to include women and the younger generation. Going forward, we hope to see increased engagement with these client segments, as in addition to addressing the advice gap, it will help to tackle concerns about potential asset loss."

Doug Abbott, Head of Wealth, UK Client Group, Schroders, commented:

“Amidst bearish investor sentiment, there is an expectation of falling interest rates and inflation in the short to medium-term. The rapid market fluctuations witnessed in November, including the MSCI World Index which surged 9%, serve as a reminder of how quickly the investment landscape can change.

“While sustainability remains a critical concern, advisors are now also turning their attention to the disruptive forces of technology, recognising the need to navigate the ever-evolving landscape. Of note is Artificial intelligence, where 70% of advisers view this as an opportunity, up from 57% just six months ago. As the Survey also reveals, the ongoing trend of outsourcing is continuing, with 36% of advisers now outsourcing more than half of their clients’ AUM – the highest proportion the Survey has found to date. This is a trend we expect to continue as advisers seek to capture the cost efficiencies and specialised expertise benefits.”

The full 2023 Schroders UK Financial Adviser Survey Report can be viewed here.

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