Article by Phil
Are smaller local Independent Financial Advisers the best option?
According to speakers at the Citywire New Model Adviser Summit in January, small local Independent Financial Advisers were said to the best option for clients looking for a bespoke service.
They suggested the comparison between dining at McDonalds against a small local independent restaurant. A good comparison and I know where I would rather eat. With so called “consolidators” buying up firms, local Independent Financial Advisers are likely to become harder to find.
Market Leader St James Place for example, has just announced that its assets under advice have hit a new high of £190 billion. They are NOT independent of course, only investing in their own funds, which as we have reported before are not amongst the best performing in the market.
But you know that you are going to get a certain level of service from a big firm like SJP, the question is how personal that service is likely to be.
Many people may not need a personal service of course, because their affairs are already organized. But when clients are looking for initial advice about pension transfers and retirement for the first time a more personalized service can often be an advantage.
We took this into consideration when we chose to merge our business with Throgmorton Capital Management. Although bigger than us they still operate as a local Independent Financial Adviser with an emphasis on personal service.
The facts and figures seem to bear out this change in the market. The Financial Conduct Authority (FCA) has just reported that the number of applications for new Independent Financial Advisers to become directly authorised have fallen by over 60% over the last five years.
In 2024 applications for 157 investment and pension advice firms were approved, compared with 436 in 2020. The number of overall authorised financial advisors has increased however, from 31,000 to around 33,000 an increase of 7% year on year, which indicates that more advisers are now working for big firms rather than starting their own firms.
More difficult to find a local adviser
This obviously makes it more difficult to find a local Independent Financial Adviser to provide you with a bespoke personal service. At a recent Citywire New Model Adviser event it was clear that many smaller firms had actually reduced the number of clients that they are working with as a result of the impact of the Consumer Duty requirements. Many firms also said that were only now taking on a small number of new clients. Those who were taking on new clients were opting for video calls to deliver their services, rather than offering a face-to-face relationship.
This is not the case at our firm.
Local Independent Financial Advisers less likely to use Artificial Intelligence (AI)
When it comes to the use of AI in financial services there is definitely an age gap between those who are happy with AI and those who aren’t.
According to research by YouGov they found that:
- 83% of 25- to 34-year-olds would be happy to get advice via AI especially if it was cheaper.
- But only 33% of over 55 years olds would be happy with AI based advice.
- 93% of those currently using an adviser were satisfied with the service, which perhaps explains a reluctance to change.
- Only 30% thought it would give them better access to an advisor.
There’s no doubt that the bigger advice firms are already looking to introduce AI into their processes in order to reduce costs. I’m not sure improved accessibility has anything to do with it. Lower costs means higher profits.
Large Claims Companies causing problems.
Big firms can often create problems because of their ability to generate large volumes of work. This is certainly true for Claims Management Companies (CMC’s) and the Financial Conduct Authority (FCA) is looking to take action. They are concerned by the large volumes of claims being sent by some CMCs into the Financial Ombudsman Service (FOS) which create lots of work with very low success rates for clients. The FCA are concerned that little investigation work is being undertaken by CMCs at the outset and the work is effectively being passed to FOS to do the work.
These volume claims often come from misleading marketing campaigns and third-party introductions which are being looked at by the FCA.
We’ve certainly experienced CMC’s acting like this. As local Independent Financial Advisers this takes up lots of time and gives us less time to provide a personal service to clients.
Which is why from 1st April FOS will introduce a £250 charge for CMCs to submit a claim, although the first 10 claims will be free.
Paperwork causing hold ups.
Away from CMC’s and the volume of paperwork they are creating for FOS, Independent Financial Advisers continue to struggle to get responses to Letters of Authority (LOA’s) sent to pension companies (Providers) on behalf of clients. This is a problem across the board regardless of whether you are a big or small firm.
FT Adviser is supporting a campaign to raise awareness of the issue which delays pension transfers. In 2024 they found that 4 million LOA’s were in the system waiting to be processed and that advisers spent over 8 million working days chasing up LOA’s.
Problems include:
- Providers only accepting their own LOA’s rather than standard ones.
- Providers only accepting LOA’s in the post rather than by e mail.
- Providers saying than LOA’s expire after an arbitrary period of time and requiring new ones to be signed.
- Providers failing to include all the information required about a pension meaning that further calls have to made to follow up on information.
- Providers not answering calls chasing updates.
- Providers not even accepting LOA’s saying that clients have to log in and download their own information.
The list goes on. The question is whether these issues just arise from inefficiency and lack of resources being applied to requests, or whether they are ploy by some Providers to avoid what is likely to be a transfer of funds away from them?
