Consumer Duty negatively impacting Advice Gap

31 July 2024

Investors with smaller assets are being squeezed out of financial advice by Consumer Duty, new research from Octopus Money has shown.

While 54% of advisers’ clients’ books have under £100,000 of investible assets, three quarters (75%) say supporting these smaller portfolios is increasingly challenging.

In the 12 months since Consumer Duty, advisers are spending more time on paperwork, which is placing profit margins and the ability to serve low-asset clients under pressure. More than a third (35%) of advisers said the additional reporting requirements have increased the administrative time spent per client and 36% have been forced to recruit additional staff.

As a result, almost half (45%) of advisers have redirected their focus to onboarding clients with higher assets, while another 45% plan to do so.

Ruth Handcock, CEO of Octopus Money, said: “As we mark one year of Consumer Duty, it’s clear the regulation has had an impact on the industry. And yet, in the pursuit of improved client outcomes, we’re inevitably seeing a short-term tightening of advice availability rather than long-term innovations that will propel the industry forward. If workloads are doubling, and minimum fees are increasing, it feels inescapable that the advice gap will widen as more and more clients are unable to access good quality financial advice.”

Money Octopus’ findings mirror a recent report by The Lang Cat, which found that the number of people receiving advice had dropped from 11% to 9% since the introduction of Consumer Duty.

Meanwhile, the minimum asset thresholds have increased by 12% to £214,000 on average in the last year, with clients falling below this threshold facing reduced support of being locked out of financial advice altogether. Currently, one in four (26%) advisers onboard these clients with a minimum fee, while a fifth (21%) refer them to another service and 19% offer a scaled down version of their services.

The impact of Consumer Duty has also extended to fee structures, said Money Octopus, with 38% increasing fees for clients with small portfolios, while 42% have shifted to hourly billing and 45% have introduced tiered charging.

Despite this, Handcock said firms have a second wave of opportunity to help lower-asset clients.

She said: “Innovation to serve clients and measure outcomes in new ways takes time, investment and collective action. As an industry, we have to foster an environment that enables everyone to adapt their service models to serve all clients effectively, regardless of their asset size.

“It will require creative thinking and implementation of new technology, alongside an openness to cultural transformation and partnership where firms aren’t solving the same problems in parallel. This open-source approach aligns with the spirit of Consumer Duty, but also ensures the long-term sustainability and growth of the sector for the good of every client.”

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