Small advice firms will continue to thrive despite the high level of consolidation in the market, predicts NextWealth in its latest report.
According to the consultancy’s ‘Future of Financial Advice’ report, firms with up to £10 million 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 focus on a client niche or local community.
Heather Hopkins, managing director of NextWealth, says: “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.”
NextWealth said the way firm size will be measured will also change, with the current system of measuring assets and number of advisers becoming outdated.
Hopkins said: “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.”
Client numbers
NextWealth believes firms will use segmentation models to define their proposition over the coming years, making use of tech and investment solutions to meet client needs. This will enable firms to create propositions suitable for clients with smaller portfolio values, while advised clients will not all receive the same service.
Hopkins said: “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. Notably, firms will increasingly use a team-based approach to supporting clients, backed by slick processes, increasing capacity for firms that seek to work with a larger number of clients.”
The report also suggested that the continued downward pressure on fees, combined with new service-based propositions and the greater focus on delivering value to clients, will lead to a gradual shift away from asset-based pricing towards new fee structures.
The rise of AI
To help cope with the burden of regulation, small firms will become increasingly reliant upon artificial intelligence over the next five years.
While regulation impacts all firms, it is felt more acutely by the small firms and poses a major challenge, says NextWealth.
Hopkins added: “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.”
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