This isn’t a challenge that’s unique to advice. But if we fail to address it, there are ramifications that stretch far beyond the sector’s borders, as it stands, advisers are balancing and facing conflicting factors. Here’s what we need to focus on.

One is growing demand. The sector has seen steadily expanding client lists, up from 2.4m in 2017 to more than 3.5m in 2023, according to the Financial Conduct Authority’s latest RMAR data, monitoring firms’ compliance, financial soundness, and intermediary activities. And appetite for advice is expected to keep rising – something that will take up advisers’ capacity, whether time, skill or capital, to meet. 

Part of this stems from behavioural changes in the decade since Pension Freedoms, allowing people to flexibly access their money saved in Defined Contribution pension plan. Clients are generally opting for drawdown, rather than annuities as was the case pre–Pension Freedoms. With various financial crises over the last few years covering Covid and cost of living crises more consumers are realising this is complex and recognise they need help. 

This ongoing trend will be compounded by an aging population that’s living longer than ever before. The average life expectancy at birth for a woman born in England between 2021-2023 is now 83, nearly five years more than it was in 1980.

Political and regulatory ambitions are also spurring demand – from a drive for national economic growth to a focus on consumer financial wellbeing. Achieving these will require the expertise of the advice sector, whether that’s increasing participation in retail investments or helping more people plan for the costs of care in later life.

The latest change to introduce Inheritance Tax (IHT) on pensions may lead to previously confident DIYers seeking advice as IHT is a whole different level of complexity.

Let’s be clear: more contact time, from more people, with advisers is always a good thing, as are stronger client books. The issue comes when advisers’ ability to meet this increasing demand is constrained by persistent headwinds.

Firms continue to shoulder intense cost pressures; pressures that restrict investment in new headcount, premises and systems. This could be exacerbated even further by the planned increases to National Insurance in April, pushing up their costs. 

On top of this, the ever-increasing regulatory burden can eat into any remaining spare time and capital advisers have. 

The outcome of this all? Firms become stuck squarely between a rock and a hard place. 

Narrowing ‘advice gap’

As long as these circumstances persist, there’s a real risk that the sector will miss out on opportunities it has to fully meet demand for its services – to narrow that oft-referenced ‘advice gap’. 

For adviser firms, that means potentially missing out on opportunities to grow as businesses. 

There are some things that can be done to help. 

The first is that we need greater engagement from the government on savings and investment policy development, so that the sector can, in turn, support and encourage proper long-term planning. 

As I wrote in my column at the end of last year, chop and change creates disruption, and disruption saps resource. 

A simple way to improve conditions is for policymakers to draw on the extensive experience of the sector to shape ideas that will work for both advisers and their clients. Where change is necessary, it’s also important to ensure appropriate transitional arrangements are in place. 

Another aid will be to streamline regulation. This will involve ensuring that advice is as cost-effective as possible to deliver, and that value is maximised for the client, all while the right safeguards continue to be in place.  

The value of advice is recognised. Nine in ten (91%) consumers who have paid for advice found it helpful, according to the lang cat’s Advice Gap 2024 report, which we supported. But firms may simply not be able to serve as many people seeking help, if regulation means it’s not fundamentally cost efficient to do so. This is something that’s already been reported as happening in the context of Consumer Duty. 

While the regulator’s intended direction in its ongoing advice-guidance boundary review could really support the delivery of more cost-effective services to a wider range of people, this is focussed more on improving guidance. We support this as a valuable first step but to free up capacity in advice businesses we do need further thinking on a practical solution to simplified advice too.

Uniting the sector

But alongside this, it will also be incumbent on the sector’s partners to do what they can to be advocates for advisers’ capacity, and agents of change.

Here, a focus needs to be on identifying what we can do, collectively, to drive efficiencies for the adviser firms they serve – making sure our products and services help them do more, with less. 

Technology improvements, and greater integration will continue to be key. As the Advice Gap 2024 report also highlighted, a ‘nirvana state’ of tech efficiency could lead to capacity per adviser rising by between 40% to 50%. At aberdeen, we continue to invest in our platform with boosting adviser efficiency in mind – from new tools such as our recently-launched ESG Hub on Wrap, to our fully-integrated cash solutions.

And we must keep sharing our combined expertise and experience with everything from support with training to technical insights. 

This can make a real difference to the time, energy and resources advisers have to dedicate to the market. 

There will always be changes in demand and resource. The trick is ensuring that there’s sustainable capacity that facilitates growth. It’s a long-term mission, but one we’re certainly committed to supporting.