Schroders UK Financial Adviser Survey 2021: Succession planning and sustainability top advisers’ agendas

From the Covid-19 vaccination roll-out to global action to address the climate crisis, in many ways 2021 has marked a paradigm shift in how financial advisers are looking at their businesses.

In its seventh consecutive year, Schroders 2021 UK Financial Adviser Survey* which encompasses views from 203 UK advisers, reveals that succession planning and ESG are at the top of advisers’ agendas we look ahead to 2022.

Succession planning is a key adviser challenge

While regulation, followed by PI cover remain the top two concerns for advisers going into 2022, succession planning has risen to third place.

This sentiment has changed significantly since last year when only 3% of advisers considered succession planning as a top concern. However, when Schroders surveyed advisers in November this year, the number of advisers who said it was a concern had risen significantly to 13%.

Gillian Hepburn, Head of UK Intermediary Solutions, commented:

“The increase in the focus on succession planning and exit strategies as we move into 2022 is fascinating and there are many reasons why this might be the case, not least of all the valuations currently being offered by Private Equity companies.

“However, if advisers can’t demonstrate a connection to the next generation, then a lack of a wealth transfer or indeed a wealth retention strategy could cause some challenges with business valuations at the point of sale.

“Only 1 in 5 of advisers identified the rise of younger generations investing in bitcoin and crypto as a threat to their business. This is an interesting view; there is a generation which is engaging in investing, but perhaps not in a ‘traditional way,’ and an ongoing lack of engagement from advisers with the very generation who will inherit wealth (and in some cases already inheriting). This could result in the next generation choosing an online or hybrid advice solution when they inherit wealth, rather than using their parents’ adviser.”

Wealth transfer – the stats don’t add up!

How financial advisers address intergenerational wealth transfer is a fundamental question to advisers. 

According to Schroders survey, three quarters (74%) of advisers view wealth transfer between generations as an opportunity for their business.

In contrast, the average age of advisers’ client base is continuing to rise, with 71% of advisers reporting they have a client bank of people between the ages of 51-64, rising from 64% in 2020.

However, when it comes to engagement only around one in three advisers said they have a specific proposition for addressing the transfer of family wealth to the next generation.

Further to this, very few (21%) of advisers have a sales and marketing strategy specifically aimed at younger investors. This is further supported by the survey results indicating that the percentage of advisers which will accept new clients with less than £50,000 has been continually declining, and is now at only 39%.

Demand for sustainable investment on the increase – driven by clients

Investing sustainably and in line with net zero commitments has accelerated exponentially in recent years.

This year’s survey further evidences this trend, revealing that the majority (75%) of advisers reported that they’ve seen an increase in the number of clients asking for sustainable investments over the past 12 months. In fact, many (64%) of advisers believe that COP26, which took place in November, has been a significant driver of this higher demand.

In response, this year 80% of financial advisers said that they explicitly consider Environmental, Social & Governance (ESG) factors in their investment decisions, almost doubling over the past two years from 43% in 2019.

Notably, environmental factors are still being rated by advisers’ clients as more important than societal and governance factors. When it comes to advisers themselves, although they still view the environment as the primary focus, overall they are now taking a relatively balanced view of  the importance of each of the three factors and understanding the interplay between them.

When it comes to talking to their clients about sustainable investing advisers’ confidence is improving overall. However, half (51%) advisers are still rating their confidence level when discussing sustainability as average or below.  

Alex Funk, Chief Investment Officer, Schroder Investment Solutions, commented:

“We conducted this survey against a backdrop where we were seeing economies opening and travel restrictions being lifted, before the recent revelations around the emergence of the new Covid-19 variant, Omicron. This sequence of events is another reminder that we’re living in a world that doesn’t stand still for very long; with this in mind we can also expect to see investor sentiment shift over the coming years, months and even days.

“That said, sentiment from our recent survey remains skewed in the positive direction, which is encouraging given where we are in the market cycle. Almost half (47%) of advisers said that sentiment amongst their clients was neutral and 41% said that it was ‘slightly bullish’ or ‘very bullish.’

“What remains encouraging to see is the increasing demand from advisers’ clients to integrate sustainability into their investment portfolios. Going forward we expect to see sustainable investing mature beyond a trend into a fundamental underlying principle of investment.”

Inescapable truths

Over the course of one year financial advisers’ short to medium term expectations have shifted significantly.

According to last year’s survey, most advisers (71%) thought there would be little change to interest rates over the next five years and less than half (47%) said they expected inflation to rise.

However, Schroders 2021 Financial Adviser Survey, reveals that the majority of advisers (79%) expect higher interest rates, whilst three quarters are forecasting higher inflation over the next five years.

In addition, disruption related to climate change remains at the forefront of advisers’ minds. Since 2019 this trend has remained consistently elevated, and in 2021, 71% of advisers are expecting the impact of environmental changes to continue to trend higher.

Despite a slight downward trend since May, importantly, growth expectations have remained buoyant with over half (58%) of advisers expecting higher growth over the next five years.

*The full report on Schroders 2020 UK Financial Adviser Survey Report can be viewed here.