Like most industries, the advice industry is not a homogenous landscape.
There are many different strategies, from sole practitioners to large nationals and networks and everything in between. The industry is changing though and as with all business it is important to be clear on your strategy and not to get caught in the middle.
Almost 20 years ago, when we started our business, the industry was fragmented into a myriad of networks and smaller firms following the break-up of the large life company and banking salesforces in the 1990s and early 2000s. Commission was the economic currency of the day and the big network ‘commission clubs’ dominated.
With the Retail Distribution Review, the industry had to professionalise. Firms small and large now run proper P&Ls so that wealth advice now operates like any other industry, with revenues (ideally recurring), costs, profits and productivity the drivers of company success.
As the industry and its business model has professionalised, so interest from external investors has grown.
Institutional investors and, in some case, public markets can see the value wealth firms can add for their clients and the recurring revenues that stem from this – both through adviser charging and, in the vertically integrated model, asset management charges.
In a model where the client is looked after, the assets and the clients are retained, so that everybody builds value – the client, the adviser, asset manager and ultimately the firm.
All firms great and small
While it has not been an easy journey, as more firms have shown how this can be done successfully, the pace of consolidation has grown.
The Financial Conduct Authority’s latest retail mediation activities report showed that in 2021, the number of firms with more than 50 advisers rose by 17 per cent, while the number with five or fewer fell by 4 per cent.
Our own client research shows this trend clearly too, with 38 per cent of firms with between two and five advisers, 77 per cent of those with six to 49 advisers and 90 per cent of those with 50 plus increasing adviser headcount over the last three years.
Both large and small firms have their merits. On the one hand, larger firms have the potential to benefit from economies of scale and can use those economies to create more value for the client and, over time, the firm itself.
Institutional money in the space has brought increased discipline around propositional consistency and efficiency of process and helped to build some great companies.
On the other hand, being a local or regional firm with deep roots in your community and client base and a strong sense of purpose is a brilliantly defendable and sustainable business in an industry that has relationships at its heart – and one in which the technology you need for your financial planning, back office and platform administration can be bought off the shelf.
