What Does 2024 Hold For The Financial Planning Sector?

With 2023 now firmly in the rear view mirror, lessons learnt and changes enacted, what delights does 2024 hold for the financial planning sector and the broader financial services industry?

While the UK has one of the most developed financial services sectors, it is important to take a fleeting glance at your global competitors occasionally. So, without further ado, let’s dive into the delights of the financial planning sector and see what 2024 holds for this rapidly changing industry.

The current landscape

Before we look into our crystal ball and see what 2024 has in store, it’s helpful to take a look back at 2023 and the major trends which dominated the financial planning industry. Probably not a great deal of surprise, but the main factors were:-

Digital and technology-driven solutions 

No great shocks there, the rise in the number of automated financial tools, AI and the ability to analyse vast amounts of data to create detailed financial planning solutions. However, regulators do have an eye on the use of technology in the financial services industry.

Environmental, Social and Governance (ESG)

ESG has been an emerging trend for the last few years, but interestingly, there is growing anxiety about the standard of reporting and accuracy of data released by listed companies and fund managers. One of the major concerns is greenwashing, the embellishment of ESG policies and outcomes, which has forced the regulator to become involved.

Personalised financial planning

The introduction of new technology, data analysis and the use of AI is helping to mould even more advanced personalised financial planning services. We are all different, with different finances and different aspirations, and this is proving to be a critical marketing tool for proactive financial planning companies.

Financial literacy

We know the old saying, give someone a fish, and they can feed themselves for a day; teach them to fish, and they can feed themselves for a lifetime. Well, we are seeing an ever-increasing focus on financial literacy and education although critically, much of this is targeted at the younger audience, with the transfer of generational wealth becoming an issue amongst advisers.

If we look on a global basis, there have been a number of practical influences on the financial services industry during 2023, such as:-

• Global economic challenges
• Enhanced regulations
• Geopolitical risks

While these have always been issues for the financial services industry, market volatility in recent years has prompted a growing number of clients to re-evaluate their investments, finances and targets for the future. This is an opportunity, more than a hindrance, for forward-thinking ambitious financial advisers; many are now offering emotional support to their clients.

Market trends and demand

Many of the topics prevalent in 2023 will remain so in 2024, but we will now take a more in-depth look at forecast trends for 2024 and, more importantly, customer demands and expectations. As a financial planner, it is important to be in touch with the market, balancing client expectations with delivery.

Regulatory environment

It is fair to say that the regulatory environment in 2023 has been dominated by the Consumer Duty regulations. While many financial planners saw the majority of these changes coming, adapting and enhancing their services many years ago, creating formal regulations is causing problems for some financial planners.

A recent survey by Core Data Research highlighted concerns within the sector:-

• 46% believe the new regulations are an unnecessary burden and will do more harm than good, against 18% who disagreed.
• 35% believe that the Consumer Duty regulations will see more advisers leaving the industry than after the Retail Distribution Review (RDR), with 21% disagreeing.
• 23% believe that Consumer Duty regulations will reshape the financial advice industry to a greater extent than RDR, and 33% disagreed.
• 11% of those questioned are looking to leave/retire due to the new regulations, with 18% offering no opinion either way and 71% not considering such a move.

For reference, the retail distribution review was launched in 2006, implemented in 2012 and changed the way in which retail investment products are sold. This included:-

• Greater emphasis on adviser qualifications
• Tightening product suitability rules
• Switching to client fees rather than commission from product providers
• Enhanced transparency regarding fees and services
• Clarity on whether investment advisory services were independent or restricted

In an interesting development, while appreciative that new regulations do take time to bed in, there is genuine concern within the industry about the constraints introduced by the Consumer Duty regulations:-

• 75% of those questioned in the survey believe it will now be more difficult to serve low-value clients.
• 72% believe that the regulatory changes will increase business costs in a challenging environment.
• 60% foresee an increase in advice fees and a widening of the advice gap, the exact opposite target of the new regulations.

On the topic of outsourcing, growing concerns with regard to regulatory liabilities have prompted many firms to consider outsourcing part of their Consumer Duty regulatory compliance. While 38% are not yet considering outsourcing, with 34% unsure, there is a growing groundswell, and 28% of respondents are actively looking to outsource this element of operations.

While the Consumer Duty regulations have dominated 2023, we have also seen some considerable changes with regard to the pensions industry. The removal of the lifetime allowance was welcomed, but, as always seems to be the case, the devil is in the detail, and there is still a degree of confusion. Is this a further reason for financial planners to consider outsourcing more of their non-client-facing operations?

Technological advancements

Intriguingly, while many in the financial planning industry were reluctant to incorporate AI/machine learning into their services, the tide is certainly turning. A Schroders survey in November 2023 found that 70% of advisers now view AI as an opportunity rather than a threat, up from 57% in May. We also know that 85% of financial planners see AI as an integral part of their advice process in the future, with:-

• 17% (8% in May) set to incorporate AI within a year
• 56% (43%) within 2 to 5 years
• 12% (22%) in 6 to 10 years
• 15% (27%) have no plans to incorporate AI

The reality is that technological advancements can be a useful means of reducing costs, speeding up the delivery of advice and creating a more personalised service (expected to be a strong trend in 2024). One interesting area of outsourcing is the creation of AI policies for financial planners, the opportunity to formulate a strategy and put client minds at rest.

While investment platforms have become extremely popular in recent years, 2023 and beyond are likely to be dominated by various financial apps. This will range from simple budget apps to those monitoring markets, providing advice and guidance. Technology and phone apps will remain a useful means for financial planners to reach out to clients and potential future clients.

Talent and skill development

A survey back in 2022 saw 73% of financial service companies putting up-skilling and retraining of staff at the top of their agenda. This has a twofold benefit for the business:-

• Active engagement with staff improves retention
• Up-skilling and retraining are positive for business services

Alternatively, there are some services which may require ongoing investment where the option to outsource may be more attractive. This has created something of a two-pronged approach, a preference to invest in client-facing services while looking to outsource “back office” and administrative operations.

Globalisation and industry dynamics

Over the next 12 months, there are numerous issues in the minds of financial planners which will impact both levels of business and the focus of ongoing investment. When asked which issues pose the greatest challenge in 2024, the feedback from the Core Data Research survey was as follows:-

• Volatile markets (23%)
• Consumer Duty regulations (20%)
• Interest rate rises (17%)
• Inflation (13%)
• Cost of living crisis (8%)
• Slowing economic growth (8%)
• Ukraine crisis and geopolitical issues (5%)
• Integrating advice tech (2%)
• Sustainability disclosure requirements (1%)
• Cybercrime (1%)

It is interesting to see a mix of external and internal topics, although ultimately, volatile markets will have a strong impact on the direction in 2024. It is probably worth noting that Banking as a Service (BaaS) is becoming more prominent due to recent interest rate rises and cash becoming a more viable asset class.

Investment risk management

If we look at investment risk, it is fair to say that the recent volatile times have concerned many clients. The Schroders survey reports that 64% of advisers have increased their client’s element of cash over the last year, with 28% reducing their exposure to UK equities. However, even though it is possible to forecast future cash flow with regard to retirement income, very few investors are making changes as a consequence of the cost of living crisis. According to the survey:-

• 11% of advisers said none of their clients had adjusted their plans
• 62% said less than one in four of their clients had made changes
• 19% said that between 25% and 50% of their clients were making changes
• 8% confirmed that more than 50% of their clients were adjusting their future plans

Unsurprisingly, in a bid to cut costs, 20% of advisers also reported their clients had stopped or reduced insurance payments.

We know that household budgets have been decimated, with a recent OBR report suggesting that relative spending power enjoyed in 2021 will not be reached until 2027, as a consequence of the ever-increasing cost of living. Has this reality really hit home yet?

Data security

When looking at the introduction of cutting-edge services, as a financial planner, it is important to ensure the topics of data security are at the forefront of your thoughts. 

These are areas in which clients have expressed concern in the past, particularly with the development of AI and the use of services such as ChatGPT. After being made aware that certain elements of client data were being used (by a small number of financial advisers) to create reports within services such as ChatGPT, companies and advisers have been reminded of their “responsibilities” by the FCA. 

This type of activity opens companies up to confidentiality and data protection issues, with the potential for information entered into chatbots to be used elsewhere. This topic, and the use of client data within financial apps and associated services, has been noted by the regulators – they are watching!

Aside from the legal consequences, if clients believe any of their private and confidential data is at risk, this will reduce confidence and, ultimately, client numbers. With new technology comes new responsibility.

Future outlook and predictions

As we march into 2024, there is no doubt that technology will play an ever greater role, particularly within financial planning research and administrative operations. While some clients may be comfortable dealing with AI-powered services, the majority would still much prefer to be dealing with a human, whether face-to-face, on the telephone or on a video conference call.

Looking to the future and predictions for the industry, there is much to consider:-

• There is growing demand for personalised financial planning – both investment and savings
• In-house spending will be more focused on client-facing services
• Administrative and research operations are more likely to be outsourced
• Compliance obligations, such as Consumer Duty regulations, are being outsourced
• FinTech, including the likes of BaaS, are becoming more prominent
• Open Banking is gaining increased approval among clients
• Greater focus on intergenerational wealth transfer

As we move forward, more financial planners are looking to outsource back-office/support elements of their business, with internal funding focused on client-facing services. The ability to outsource tick box exercises such as monitoring compliance obligations as well as big data analysis, and creating investment reports/recommendations, saves time, money and what can be inefficient internal investment.

In summary, much of the same from 2023 but a greater divergence in the way that administrative and client facing services are being viewed and developed.

Strategies for success

So, we have looked at the challenges for 2023 and expectations for 2024 and covered client expectations in the short to medium term. So what are the main strategies for success going forward, the means of protecting existing business while looking to attract new clients?

These can be summed up in a relatively small list:-

• Greater focus on personalised financial planning
• An open and transparent policy towards the use of AI/digital services
• Integrating financial literacy/education as an option for clients
• A greater appreciation of national and international challenges
• Internal investment in staff training, development and up-skilling

Even though we are in a world dominated by technology, it’s good to talk, know your clients and put a human touch on what may often be an automated/AI-dominated process.

Conclusion

2023 has been a challenging year for the financial services industry and investment markets. The introduction of new technology, AI and machine learning in particular, has to a certain extent, helped financial planners. However, the more this technology emerges from the shadows the more questions being asked by clients.

While 2024 will probably be much of the same, we will likely see an enhanced focus on personalised financial planning, outsourcing, financial literacy and education and another level of transparency. The Consumer Duty regulations will present a number of challenges regarding the delivery of services and charges, but this is an industry which is flexible, and adaptable and has constantly shown an ability to move with the times. Why should it be any different this time?