Next year is set to be one of challenge and change for the advice profession, but also one of opportunity, as the UK plots an uncharted journey outside the economic boundaries of the EU and planning businesses continue to adapt to evolving regulation.
Reform of the Financial Services Compensation Scheme’s funding will be front and centre in what is set to be another testing year for advisers on the regulatory front, but this could also help alleviate pressure on the levies they pay.
Compliance and professional indemnity insurance will be the key priorities for the industry, with all eyes turning to how advisers, asset managers and even platforms will fare under incoming rules.
There is hope that the FCA can ensure changes will not see soaring costs push time-pressed advisers further towards problems, and can maintain the quality of general advice evidenced in a number of reviews over the past few years.
Advisers’ relationships with platforms, providers and investment managers are also set to be tested in 2019 as the market shifts. Major platforms are struggling to move on from a disappointing and difficult 2018 which left many advisers in the lurch with technology upgrades, while providers will be stretched by coughing up extra pounds for the FSCS cause and meeting consistent demands for product innovation.
A study by Aegon into the biggest opportunities for the advice sector in 2019 and 2020 shows that 45 per cent of the industry places defined benefit to defined contribution transfers at the top of the list.
Brexit, the pensions dashboard and non-Brexit-related political uncertainty follow as adviser-voted areas of opportunity for the next two years. At the bottom of the worries list for advisers are concerns over vertical integration, the future of the Lifetime Isa and auto-enrolment’s progression, Aegon says.
As political and economic uncertainties pull the advice profession into the new year, Money Marketing looks at what key themes will demand attention.
Next year will be another bumper one for pensions, with more adviser confidence in DB to DC transfers
Steven Cameron, pensions director, Aegon
Continued publicity around the pension freedoms, combined with political uncertainty, has caused clients to take an increased interest in pensions this year.
A new £69m FSCS levy on advisers’ heads for 2019 will see the year start on a sour note for pension planning, however, as the lifeboat fund is pointing the finger directly at unsuitable pension transfer advice and Sipp misselling as the culprits behind higher redress bills. The FCA’s findings on pension transfer advice released last week sing a similar tune.
Advisers are set to face “serious consequences” over poor transfer advice in the new year, with firms that fail to review their business models in light of concerns the first target, the FCA adds.
Despite this, Aegon pensions director Steven Cameron says advisers’ growing confidence in DB to DC transfers will be a positive theme for the coming year.
He says: “2019 will be the year of genuine confidence in DB to DC transfer advice, with customers knowing that the advice they receive is best for them, and this will likely extend to the regulators, who will be able to put any problems of the past behind them and focus on a well-functioning market going forward.”
KPMG UK director of tax and pensions Richard Birkin agrees advisers are responding well to regulatory scrutiny around transfers.
He says: “Those advisers with their own solutions are flagging this with their clients early in discussions.”
Advisers can expect to be answering plenty of other pension queries in 2019, with Britons who live in the EU potentially at risk of having pensions frozen. The pension industry is also expecting the new authorisations regime for master trusts to cause providers to fold, meaning advisers will need to keep a close eye on the potential fallout.
Auto-enrolment contributions are also on the rise heading into the new year and progress on a pension cold-calling ban, to be introduced in 2019, should help weed out more problematic advisers.
As next year unfolds, Better Retirement director Billy Burrows says advisers will need to “go the extra mile” to give clients access to information that will keep every party on the same page.
He says: “This is easier said than done, but thousands may end up losing valuable income.
“Clients are influenced by news and if that is misleading, the result is poor decisions.”
Regulation has clarified that climate risk is financially material and asset owners are starting to push for greater transparency from advisers.
Honor Fell, research manager, Redington
Another major change will see providers contributing a quarter of advisers’ bills for compensation. Advisers’ calls for providers to pay up to 75 per cent were shot down, but a major concern remains with PI insurance bills.
Barnett Waddingham head of Sipp business development Andy Leggett says no part of the industry is exempt, and all will be affected by any talk of more levies.
He says: “The rotten apples have undermined the reputation of advisers and, having reached a point where the FSCS appears concerned about drawing any more money off advisers, the FCA is proposing the fund starts drawing money off pension providers too.”
Advisers can expect smoother sailing on the Mifid front, as more guidance is emerging on new disclosure rules, with the regime now having had 12 months to bed in.
He said: “Frankly, with the likes of Mifid II and also PI costs, it’s become impossible to deliver the proposition we wanted for our clients at a cost that is competitive.”
Compliance provider Steel Eye says fund managers will also be facing Mifid II challenges into the new year, which could cause a knock-on effect for advisers.
Chief executive Matt Smith says: “Complying with the requirements isn’t proving easy and many managers aren’t yet on board. Two thirds of the 9,000 firms affected by Mifid II are small- or medium-sized and have a shortage of time and capital to devote to more compliance.
“Mifid II has really hit in three areas: inducements, investment research and product governance. Regulators are beginning to come down more harshly on poor quality and non-compliance.”
Advisers should see less disruption from replatforming and tech upgrades next year, just in time for what may be a testing period
Mariam Pourshoushtari, qualitative analyst, Platforum
It was a rough start to 2018 across the platform industry, with numerous technological upgrades falling flat. Advisers were left questioning the reliability of the platforms they worked alongside, with many reconsidering options that could deliver more stability for client assets.
Money Marketing questioned advisers at the start of the year to see what they were looking for in a platform during 2018.
Efficient service outweighed having an extensive range of investments, with the topic of model portfolio efficiency also a strong area of debate expected to carry through to the new year.
While the FCA’s recent work on competition in the platform space could lead to benefits like free adviser education and training courses, white labelling, bulk rebalancing and model portfolio management tools limited as “inducements”, clients and advisers could benefit from a potential crackdown on orphan client charges and exit fees.
2019 is a crucial time for every advice business to have a three- to five-year road map on transforming, to take full advantage of technology
Ian McKenna, director, Finance & Technology Research Centre
Advisers continue to face the inevitable dilemma of whether to invest their time and money into better technology or risk being left behind.
Commissioner Antony Townsend’s calls for the FCA to review its systems to ensure advisers are treated fairly did not fall on deaf ears, and advisers should feel confident in improvements moving into the new year.
Whatever 2019 brings, the basics of good investment don’t change: patience, planning and discipline
Rick Eling, investment director, Quilter
With a tough macroeconomic and political road to come, advisers will be instrumental in helping clients make the right investment decisions and will need to continue working closely with investment managers and third-party services in 2019.
Vanguard chief economist Peter Westaway says: “Given this challenging outlook ahead, investors will focus on key factors like saving more, working longer, spending less and controlling investment costs.
“Additionally, investors should continue to adhere to time-tested investment principles, such as maintaining long-term focus and employing a disciplined asset allocation.” Investment management charges are also under the spotlight, with regulatory changes driving more transparency in cost reporting as regulators look to boost market competition.
Advisers are also likely to be faced with more ethical or sustainable requests from clients, with regards to their investment choices, with a positive swing towards impact investing seen in the past few months.