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Business risks to advice firms have increased in past five years

5 September 2019

The overall risks to adviser businesses have increased in the past five years, according to new research from Canada Life, which saw almost three quarters of advisers [71%] agree with the statement, and compliance risks top the list of issues for firms.

The 10 biggest risks facing advice firms at present were cited as:

1. Compliance risk   72%

2. Economic risk e.g. Brexit, market volatility   50%

3. Time management   47%

4. Cyber security/crime   38%

5. Cost disclosure/margins   36%

6. Managing client expectations   36%

7. Legal risk   34%

8. Operational risk   32%

9. Staffing and retention   25%

10. Competitive risk   17%

To combat the variety of risks to their businesses, advisers are looking to technology. The top 5 strategies to reduce risk were:

1. Move to a better technology base   43%

2. Reduce costs   38%

3. Cost disclosure/margins    36%

4. Find richer clientele   25%

5. Exit certain advice areas   25%

Commenting Neil Jones, tax and wealth specialist at Canada Life, said:“The range of challenges in front of advisers is massive – they need to cut costs, reduce compliance burden through efficiency, appeal to an always-on generation wanting always-on answers, and defend themselves from cybercrime, to name just a few.

“Risks are moving smaller advisory firms to embrace technology at unprecedented levels. There is some low hanging fruit for advisers, with automating part of the back-end business being one example. Potentially this can help increase efficiency, cut costs and, done right, may help reduce the regulatory hassle by automating part of the compliance burden.

“The challenge for smaller firms will be achieving this while keeping a tight lid on costs. Unlike larger firms, they’re a lot less likely to be able to employ a full time, IT specialist in house. Freelance wealth IT specialists could find themselves increasingly in-demand in the coming years.

“Outside of technology there are some intriguing strategies at work. Interestingly, over a third see disclosing their margins and costs as a risk strategy. This implies a level of trust in their clients – by being open about profits and costs clients can understand exactly how much bang they are getting for their buck. To this extent, RDR has had a positive effect in terms of levelling the playing field for transparent costs.”

*185 advisers nominated their top 5 risks and their top 5 risk management strategies.

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