United Kingdom (UK) Financial Advisors Market Overview by Financial Advice Firms, Opportunities and Threats, 2023 Update

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United Kingdom (UK) Financial Advisors Market Report Overview

The financial advisory market in the UK has performed strongly post the COVID-19 pandemic, with average revenues and profits increasing. The market composition is steadily changing amid a wave of consolidation due to ready sellers and willing buyers. Single advisor firms still dominate the market, but there has been a steady growth in the number of medium-sized firms as well. Key financial advisor concerns have changed over the last 12 months, with inflation coming to the fore. In addition, many financial advisors are finding the regulatory burden an ongoing challenge. An increased focus on environmental, social, and governance (ESG) investing is the key opportunity in the market besides exploring new business models.

The United Kingdom (UK) Financial Advisors market research report discusses the key trends shaping the UK market for financial and investment advice over the course of 2022. It covers the size and growth of the financial advice market in the UK (including profitability), merger and acquisition activity, as well as the key threats and opportunities cited by advisors.

Key Market Drivers Retirement, Starting or Exiting a Business, Concerns about Legacy and Inheritance, Buying A Home, Change in Job Circumstances, and Being Left an Inheritance
Key Channels Independent Financial Advisors, Investment Management Companies (Platform Only), Advisors at Client’s Main Bank, Investment Management Company, and Investment Platform at Client’s Main Bank
Leading Players HSBC, Santander, NatWest, Barclays, Raymond James, Brewin Dolphin, and M&G Wealth
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UK Financial Advisors Market Critical Success Factors

Determine your regulation strategy: There is a considerable wave of regulations for financial advisors in the coming years. For instance, 2023 and 2024 will be dominated by the new Consumer Duty rules, which have far-reaching implications for advisors as the FCA moves to a more outcome-based approach, rather than the traditional rules-based approach. There will also be changes related to the Consumer Investments Strategy and ESG investing, among others.

Embrace the opportunities offered by new business models: The quality of financial advice may have improved since the FCA’s Retail Distribution Review (RDR), but the advice gap remains a persistent issue. Automated advice offerings have helped to an extent, but there is a lot of ground between robo offerings and full financial advice. The FCA is encouraging innovation in terms of developing new models and charging structures. Many providers are looking at the possibilities offered by hybrid advice, focused, or simplified advice, and financial coaching.

Consider how to target the next generation of clients: Currently, financial advisors’ clients are typically older, affluent individuals but companies need to consider how they will retain the business of the next generation. Intergenerational wealth transfer is about much more than providing inheritance tax and estate planning services to current clients. It is also about starting to build relationships with inheritors. This is particularly important given the wider competitive environment, with more banks, platforms, and investment managers targeting the financial advice space directly.

UK Financial Advisors Market Opportunities

There were some notable changes between 2021 and 2022 in the business opportunities identified by financial advisors. Topping the list for the first time was the increased focus on ESG investing, followed by a potential financial market downturn and the UK’s aging population. Intergenerational wealth transfer and social care funding featured much more strongly in 2022. Financial advice should look to the sustainability of their own operations and how they build ESG considerations into their business. For customers who are very focused on ESG, the behavior of the providers they work with will be a key consideration.

UK Financial Advisors Market Drivers

The key drivers for seeking financial advisors in the UK are retirement, starting or exiting a business, concerns about legacy and inheritance, buying a home, change in job circumstances, and being left an inheritance, among others. Retirement was the primary driver that prompted clients to approach financial advisors in both 2021 and 2022 as it is one of the most complex life stages in terms of financial planning and decision-making with many options for individuals to consider. The second key reason for seeking advice is starting or exiting a business which involves a host of personal financial considerations such as managing any lump sums received and tax advice. Since the COVID-19 pandemic, the tough macroeconomic situation has brought about notable changes in the UK business population.

UK Financial Advisors Market Analysis by Drivers, 2022 (%)

UK Financial Advisors Market Analysis by Drivers, 2022 (%)

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UK Financial Advisors Market Segmentation by Channels

Some of the key channels preferred by the UK financial advisors market are independent financial advisors, investment management companies (platform only), advisors at the client’s main bank, investment management company, and investment platform at client’s main bank. IFAs are the go-to channel for those who hold investments. The key draws of IFAs are their wide range of services beyond investments, as well as the breadth of their investment offering. They can provide a full-service offering that takes investors’ whole financial situation into consideration and can cater to any additional needs, such as retirement income and tax planning.

UK Financial Advisors Market Analysis by Channels, 2022 (%)

UK Financial Advisors Market Analysis by Channels, 2022 (%)

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UK Financial Advisors Market - Competitive Landscape

The leading players in the UK financial advisors market are HSBC, Santander, NatWest, Barclays, Raymond James, Brewin Dolphin, and M&G Wealth.

Leading UK Financial Advisors

Leading UK Financial Advisors

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Segments Covered in the Report

UK Financial Advisors Market Channels Outlook (2022)

  • Independent Financial Advisors
  • Investment Management Companies (Platform Only)
  • Advisors at Client’s Main Bank
  • Investment Management Company
  • Investment Platform at Client’s Main Bank

Reasons to Buy

  • Understand the latest data on the size and composition of the UK financial advice market.
  • Find out about the latest M&A deals in the consolidating financial advice space.
  • Learn who uses financial advisors and what their motivations are for doing so.
  • Discover what financial advisors consider to be the main opportunities and threats for their business.
  • Understand the current regulatory challenges facing financial advisors.
  • Learn more about the growing competitive threat from banks, investment managers, and DIY platforms.
  • Uncover the opportunities offered by ESG investing and new business models.

HSBC
Santander
NatWest
Barclays
Raymond James
Brewin Dolphin
M&G Wealth

Table of Contents

  • 1. Executive Summary
  • 1.1 Market overview
  • 1.2 Key findings
  • 1.3 Critical success factors
  • 2. Market Overview: Financial Advice Firms
  • 2.1 The number of advice firms declined by

    0.4% in 2021

    • 2.1.1 The number of financial advice firms is down, while financial advisor numbers are up
    • 2.1.2 Single advisor firms continue to dominate
    • 2.1.3 The majority of firms are classified as independent

  • 2.2 Consolidation is changing the structure of the market

    • 2.2.1 2022 merger and acquisition activity surpassed 2021
    • 2.2.2 Willing sellers and private equity-backed buyers will fuel further consolidation

  • 2.3 Average revenues and profits grew in 2021

    • 2.3.1 Revenue growth was strongest among mid-sized players
    • 2.3.2 Average profits recovered to record strong growth
    • 2.3.3 Control of the cost line will be challenging over 2022–23

  • 3. Financial Advisors and their Customers
  • 3.1 The financial advice industry remains focused on retirement

    • 3.1.1 Retirement and starting or exiting a business are the top two reasons individuals seek advice from a financial advisor
    • 3.1.2 From a product perspective, IFAs are the preferred channel for investments

  • 3.2 However, financial advice is only reaching a small proportion of consumers

    • 3.2.1 Most pension pots are withdrawn without advice or guidance
    • 3.2.2 The limited investment culture in the UK also means that financial advisors are the preserve of the few

  • 3.3 Financial advisors’ typical client base constitutes older, affluent individuals

    • 3.3.1 The affluent account for over two thirds of financial advisors’ AUA
    • 3.3.2 The use of IFAs also increases in line with age, making older millennials a key potential target market

  • 4. Opportunities For and Threats to Financial Advisors
  • 4.1 Threats: Inflation, a financial market downturn, and the regulatory burden are the key concerns of advisors

    • 4.1.1 The concerns of financial advisors changed between 2021 and 2022

  • 4.2 Rising inflation has created various challenges

    • 4.2.1 The cost of doing business has risen significantly
    • 4.2.2 Clients will need guidance on protecting their assets from inflation

  • 4.3 Financial market downturn: Threat or opportunity?
  • 4.4 Regulation: Consumer Duty is the key focus for 2023, but there is other regulatory activity to be aware of

    • 4.4.1 Consumer Duty: Improving consumer protection in retail financial markets
    • 4.4.2 Consumer Duty has implications across an advisor’s entire business
    • 4.4.3 Consumer Investments Strategy: Wide-ranging reforms with direct implications for financial advisors
    • 4.4.4 A new core investment advice regime has been proposed to discourage excess cash holdings

  • 4.5 Competition from banks and investment managers is increasing

    • 4.5.1 Investment managers and platforms are also targeting investors directly

  • 4.6 Opportunities: ESG investing, a financial market downturn, and the aging population top the list

    • 4.6.1 Intergenerational wealth transfer recorded a notable increase

  • 4.7 ESG investing is considered the number one opportunity by financial advisors
  • 4.8 The aging population and intergenerational wealth transfer bring new opportunities for financial advisors

    • 4.8.1 Growth in the over 65 population will increase the size of a core target market
    • 4.8.2 ‘The Great Wealth Transfer’ means intergenerational wealth transfer is an increasingly important theme for financial advisors

  • 4.9 The emergence of new business models

    • 4.9.1 Hybrid advice models provide a halfway house between full and automated services
    • 4.9.2 Focused or simplified advice offers a means to target consumers with one-off services
    • 4.9.3 Financial and investment coaching is a growing niche
    • 4.9.4 Fixed-fee models are providing a new approach for full advice services

  • 5. Appendix
  • 5.1 Abbreviations, acronyms, and initialisms
  • 5.2 Definitions

    • 5.2.1 Defined benefit pension
    • 5.2.2 Defined contribution pension
    • 5.2.3 Emerging affluent
    • 5.2.4 HNW
    • 5.2.5 IFA
    • 5.2.6 Liquid assets
    • 5.2.7 Mass affluent
    • 5.2.8 Mass market
    • 5.2.9 Restricted advisor

  • 5.3 Methodology

    • 5.3.1 GlobalData’s UK IFA Survey

  • 5.4 Secondary sources
  • 5.5 Further reading
  • 6. About GlobalData

Table

Table 1: Selected financial advisor acquisitions 2022, part one of five

Table 2: Examples of private equity-backed financial advice firms

Table 3: Average revenues of financial advice firms, 2017-21

Table 4: Average pre-tax profit of financial advice firms, 2017-21

Figures

Figure 1: The number of financial advice firms fell, while financial advisor numbers increased in 2021

Figure 2: The number of mid-sized firms recovered in 2021

Figure 3: Restricted and dual status firms represent just over 10% of the market

Figure 4: The number of ongoing clients at financial advice firms continued to grow in 2021

Figure 5: Retirement remains the number one driver for seeking advice from a financial advisor

Figure 6: IFAs are the preferred channel for arranging investments

Figure 7: The breadth of services offered by IFAs is a key draw

Figure 8: The majority of pension pots are withdrawn without advice or guidance

Figure 9: Traditional banks and building societies remain the first port of call for those opening new investments

Figure 10: Mass affluent and HNW clients account for the majority of financial advisors’ AUA

Figure 11: Investment holding is strongest among mass affluent individuals

Figure 12: The use of IFAs for investment advice increases with age

Figure 13: Over a third of financial advisors view a potential financial market downturn as their key threat

Figure 14: Inflation peaked at 11.1% in October 2022

Figure 15: The FTSE 100 recorded a strong finish to 2022

Figure 16: Examples of UK banks’ robo-advice services

Figure 17: M&G Wealth’s key milestones

Figure 18: 27% of financial advisors consider the increased focus on ESG investing a key opportunity

Figure 19: The over-65 population is projected to increase year-on-year through to 2033

Figure 20: Delineating between different financial advice and coaching models

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