Regulatory pressures and the proliferation of low-cost options are putting pressure on advisers’ profitability in the UK. However, not all business models are affected equally – smaller players are expected to feel the pinch more severely, being significantly more likely to have been forced to decrease their fees. Further industry consolidation will be driven by this trend particularly in the financial adviser arm.
Data from our 2020 UK Advisers Survey shows that one in five financial advisors in the UK have lowered their fees over the past 12 months.
However, this proportion is considerably lower when considering larger players. Only 12.7% of advisers with more than £250m in assets under advice (AuA) lowered their fees, with the percentage rising to 25.6% for those with AuA of less than £50m.
The principle reasons for doing so are regulatory changes, such as MiFID II, and the prevalence of low-cost investment options, which have resulted in increased fee-sensitivity among clients. While these issues apply to small- as well as large-sized wealth managers, the latter are able to cope more effectively thanks to their economies of scale.
Going forward, GlobalData expects pressure to intensify given the worsening COVID-19 situation in the UK. When asked about the threat that concerns advisers most, only one in 10 among those with more than £250m in AuA quoted the impact of COVID-19 on their business. This proportion jumped to 17.1% among those with AuA of less than £5m.
While more consumers are concerned about their finances, fewer will be willing or able to pay the fees for financial advice. This will put additional cost pressures on financial advisers, and we are likely to see the number of smaller players active in the UK market continue decreasing.