Five ‘significant shifts’ in financial advice to expect by 2028

Nextwealth has published a report titled Future of Financial Advice

Consultancy Nextwealth has identified five significant shifts in the financial advice industry it expects to see play out over the next five years.

The firm has published a report titled Future of Financial Advice, which it says uses data and insights to highlight the ‘disruptive forces’ that are determining the future shape of the retail financial advice market.

First, small firms will continue to thrive. Nextwealth said firms with up to 100 employees and up to £10m in revenue will have defined a robust operating model and will have a partner for compliance support. Most will adopt a single source tech stack and they will focus on a client niche or local community.

Heather Hopkins (pictured), managing director, commented: “In spite of a long history of small and micro advice firms, our prediction that small firms will thrive in the future seems to fly in the face of existing views. However, our research highlights that while there is a high and sustained level of consolidation, this remains matched by the replacement rate of small advice firms spinning out of larger corporates and new registrations.”

The second shift is that the number of clients served will grow by 30%. Hopkins said: “Firms will use segmentation models to define propositions, making clever use of tech and investment solutions to meet client needs. The concept of spending two or three hours at particular life moments face-to-face with a trusted adviser will not disappear, but where it suits client needs and preferences, they will increasingly self-service and interact with other members of their client service team.”

The next of the predicted changes is a gradual shift away from asset-based pricing. Hopkins commented: “As a result of the continued downward pressure on fees, combined with new service-based propositions and the greater focus on delivering value to clients, we expect a gradual shift away from asset-based pricing towards new fee structures.”

The fourth major shift detailed in the report is an expectation firm size will be measured differently.

“Measuring firm size based on assets and number of advisers is outdated,” noted Hopkins. “While data on employee numbers and revenue is harder to get, we think they are more important. Our report lists six adviser business segments which all go a step further to defining a variety of business and operating models, recognising some of the distinguishing features between advice firms.”

The final of the five disruptive shifts is AI playing a key role in compliance checking.

Hopkins explained: “We found that regulation is regarded as hindering the growth of the advice market, although everyone we spoke to emphasised the importance of a good regulatory regime and framework.

“The regulatory burden is felt acutely by the small firms that continue to be vital to the profession, and tighter regulatory oversight of significant numbers of such firms is currently a major challenge. We predict that AI will be used to support the scaling of compliance checking, which should help small firms to present a more manageable interface with the regulator.”