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Malcolm Kerr: Do the risks outweigh the benefits for the modern adviser?

Malcolm_Kerr_EYI was never a big fan of the business plan process when I worked in the industry. Each year, it became more complicated and meaningless.

Bottom-up numbers painstakingly developed through God knows how many boring internal meetings were then “calibrated” at group level. Inevitably, our projected revenues were increased and expenses reduced. Basically, our work was a complete waste of time.

The one element of the process that did make sense was the development of a market context for the next couple of years, which usually boiled down to risks and opportunities.

With this in mind, I thought it might be worthwhile to think about the 2019/20 contexts for advisers. In no particular order:

Potential risks

Market meltdown: Clearly a possibility but the impact on the advice sector was (relatively) limited in the 2008 crisis. That said, a long-term bear market would reduce initial and ongoing fees and play havoc with many players’ profits and forecasts.

Brexit: Who knows? In my opinion, whatever happens will not strike a serious blow to the sector in the immediate future. But see my above point on a market meltdown.

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Defined benefit transfers: There is a possibility the FCA will implement some sort of comprehensive review process, not dissimilar to that required back in the days of pensions misselling. This could be debilitating to say the least, inflicting serious brand and financial damage to the advice profession. There is also the possibility (probability?) of banning contingent charging in this space.

Contingent fees: Indeed, one could argue that, if contingent fees create a conflict of interest in the DB transfer space, the same could be said for across the board. Clearly this would have a major impact on the whole market but I doubt the FCA would wish to cause such disruption at this time.

Pimlico Plumbers precedent: The recent Supreme Court judgement that a self-employed plumber was actually an employee will be of great interest to HM Revenue & Customs and the Treasury, which is looking to raise money from every available source. My guess is that more than half of advisers are currently taxed as self-employed, so this could be a very serious challenge for the market.

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Labour government: I can still recall the left wing government in the early 1970s introducing 98 per cent tax on unearned income. It created as many opportunities as it did problems. But we might not be so lucky this time.

Potential opportunities

Flat rate pension tax relief: Provided all the complicated rules around contribution limits are removed.

Defined benefit transfers: This will remain a massive market for advice, with demand exceeding supply for the foreseeable future.

The divestment market: There is about £1trn of investable assets in the hand of the 50+ consumer. The proportion looking for divestment advice is growing all the time and again demand exceeds supply.

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Technology: Most advisers are already using technology to improve client outcomes, reduce costs, mitigate risk and increase productivity. Artificial intelligence could produce further improvements in these areas but it must support rather than drive the business.

Equity release: I know many advisers have been sceptical about these propositions but business volumes have grown substantially over the past couple of years. Some providers are now prepared to release equity on a monthly basis, which is more attractive than releasing lump sums and depositing them in an account that delivers less than half of the interest being charged.

Diversity: There is plenty of evidence that firms with a diverse workforce can achieve better productivity than those without. Of course, there is no quick and simple answer to exploit this opportunity but some small steps will pay large dividends

Regulation: Mifid II and Priips are no doubt well-intentioned but the sheer volume and complexity of the information is leading to consumer apathy rather than understanding. A key adviser skill is turning this sort of complexity into simplicity, which will be valued even more by clients faced with piles of additional gobbledegook.

Intergenerational wealth: Of course this is a problem as well as an opportunity. But let us focus on the positives. I hear an increasing number of success stories based on advisers setting up family meetings to discuss finances, so the next generation understands the plans being made and the adviser stars to build relationships.


So, what is the conclusion? Given the risks and opportunities identified (and of course there are many others), would this be a market worth entering?  I think the answer is yes.

More evidence can be found in the recent FCA Data Bulletin on intermediaries, which shows most firms are in good financial health. The transaction activity suggests there are a lot of organisations looking to acquire quality firms of all shapes and sizes. These buyers include life companies, asset managers, discretionary fund managers and other advice firms and consolidators. It all looks pretty positive to me.

Malcolm Kerr is an independent consultant



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