How consulting firms can deal with the current economic situation

The financial advisors market in the UK has historically been extremely fragmented and rising regulatory costs and the lack of internal succession plans have led to an increase in consolidation activity in the sector, writes Pranav Nadkarni, Director of Advisory Consulting at Evelyn Partners.

Despite this trend, the UK still has a large proportion of small and medium-sized, local, consultant-owned businesses.

While advisor-owned businesses have advantages in terms of the choice available to consumers, in uncertain times of rising inflation, volatile markets, a challenging job market and rising costs of regulatory compliance, the smaller financial advisors could be heading for a perfect storm.


Regardless of the size of the financial advisory firm, operating a regulated business is imperative.

In recent years, the cost of regulatory compliance for financial advisors has steadily increased – including the Financial Services Compensation Services (FSCS) fee and Professional Indemnity (PI) premiums to account for the increasing instances of misadvice leading to higher client claims. While these costs can be unavoidable, they hurt the well-run advisors versus the poorly run ones.

An increased regulatory focus from the Financial Conduct Authority (FCA), such as B. misdirected DB pension transfers, has resulted in both immediate revenue risk for some financial advisors and increased customer retention risk.

The costs associated with such an investigation add to the financial pressure in already difficult times. The continued inflationary environment and volatility in financial markets are likely to weigh on financial advisor profitability.

Strategic direction

Aside from the current economic challenges, several structural changes affecting the financial advisory market have been brewing for some time – these include a rise in robo-advisers and fintech-led DIY investments aimed at younger demographics.

We are beginning to see the emergence of new hybrid operating models that combine digital tools with the ability to consult an advisor through virtual meetings.

In such volatile times, financial advisors should understand the key risks facing the business and review the short-term impact of those risks on their cash position.

As a general rule, financial advisors should reassess their strategic direction – do they want to remain independently owned or are they open to selling. Independence could be expensive, especially in the current macro environment. Companies should regularly review and stress test their short-term cash flow projections to reflect the various risks the company faces.

While there may still be opportunities for an exit through selling to consolidation platforms or networks, there is a risk that rising interest rates could potentially slow the growth of financial advisor consolidation, particularly in private equity-backed deals that require leverage to co-finance these acquisitions.

Financial advisors may consider joining a networking group that can maintain their independence while having centralized back-office support capabilities, internal PI insurance coverage, and technology infrastructure. Financial advisors looking to buy other smaller businesses should place greater emphasis on employee and client retention through effective communication and incentive plans (e.g., deferred earn-outs).

insolvency advice

Financial advisors who are already in dire straits should consider formal restructuring tools (e.g., Company Voluntary Arrangements (CVAs)) that may have positive outcomes for all parties involved.

It is important to seek bankruptcy advice as soon as possible in such scenarios and to have an open and proactive discussion with regulators.

This article was written for International Advisor by Pranav Nadkarni, Director of Advisory Consulting at Evelyn Partners.

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