ADVISORY BUSINESS BAROMETER

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1 ADVISORY BUSINESS BAROMETER What keeps you awake at night? Intrinsic Principal and Partner Research Foreword Steve Fryett Managing Director, Wealth Network Our industry has undergone unprecedented change in recent times and the environment we re working in is very different to the one we were encountering a few years ago. Regulatory changes, pension reforms, socio-economic developments, and the ever-evolving expectations of customers have all impacted our world. But what does this actually mean to our day-to-day working lives? Our Advisory Business Barometer research set out to discover exactly that. In January 2017 we surveyed Principals and Partners, seeking insight into four key areas: The impact the macro environment is having on your businesses What is driving your business performance? How your firms expect to deliver their growth potential The role of long-term strategy in your business The findings were further analysed to identify where there were any significant differences between the Wealth and Mortgage Networks, as well as by business size, to reflect the differing opportunities and challenges faced by all the businesses in our network. The survey produced some compelling results which reinforces much of our current thinking, as well as much food for thought to inform our future business plans. Thanks to all who participated in the survey and I hope you find the report both useful and informative, enabling you to compare your own firm with others and give you a feel for the profile of the rest of the Intrinsic network. Four key themes emerge from what you told us: CONFIDENCE Confidence in the demand for your services GROWTH Growth in your businesses expected DIGITAL Despite limited marketing activity, you see a need for support with digital channels PARTNERSHIP Longer-term strategic business planning support is needed Enjoy the report. 01

2 CONFIDENCE CONFIDENCE IN THE DEMAND FOR YOUR SERVICES You feel confident about the short-term economic outlook Most of you are feeling confident that the UK economic environment will continue to drive demand for financial advice in the next 12 months. Both the Wealth and Mortgage Networks expect to see growth in the volume of clients seeking advice, driven by economic uncertainty, BREXIT and ongoing low interest rates. 74% 74% are confident the economic outlook will encourage clients to seek advice in the next 12 months Clients (who are SME business owners) I speak to are very positive about BREXIT as they see more control over their business. but BREXIT, and associated economic uncertainties remain a concern Despite the opportunities you see potentially arising from BREXIT, this is also the development which you feel is most likely to present challenges during the next 12 months. Alongside this, you are most concerned that limited economic growth, instability in the EU and the potential for interest rate rises also have the potential to limit growth in the market. 47% see the BREXIT process presenting significant challenges Continued uncertainty drives need for advice. Demonstrating the value of advice is crucial In your view, affordability is the main barrier to consumers seeking advice, along with the need to build trust in the advice market. Consumer research* also identifies cost as the main issue, but places greater emphasis on the need to demonstrate good value for money by generating better outcomes than consumers can achieve by themselves. We all have a role to play in establishing the value of advice in the minds of consumers. 47% 62% 62% cite cost as a barrier *Consumer Intelligence Research, conducted for Intrinsic. 2,013 Consumers. January

3 GROWTH BUSINESS GROWTH EXPECTED You feel confident your businesses will achieve their financial targets Most of you are feeling confident the demand for advice will translate into strong business performance this year. This confidence drives expectations of growth in both turnover (75% sole trader vs. 90% larger firms) and client numbers over the next 12 months. The vast majority of you expect this to translate into improved profitability, despite increasing cost pressures. 84% 84% are confident their business will fulfil its financial targets this year (77% sole traders) Referral relationships will support growth 38% of you expect to see an increase in strategic alliances and introducers in the next 12 months. Those of you in the Mortgage Network are more likely to expect growth from this source (47% increasing relationships). Pension reforms driving growth Those of you offering pension advice see this as a crucial area driving growth in the market, as a result of the recent pension reforms. You foresee more people entering the market for investment advice, as well as the opportunity to provide advice to clients over a longer time-frame; planning from a younger age, followed by decumulation/investment advice continuing well into retirement. Many of you would like to see more information and choice around decumulation options in order to help you cater to this growing demand in the most effective way possible. Impact of pension reforms: MORE CLIENTS Public awareness has increased dramatically. This is a complicated area of financial planning which is not DIY. MORE ASSETS Drawdown rules lead to greater FUM and greater opportunity to advise on annuities with more tailoring to clients individual circumstances. Outsourcing model is prominent External outsourcing relationships are far more prominent in larger firms, with 90% outsourcing at least one business function, compared with 52% of sole traders (most commonly IT support or paraplanning in the smaller firms). LONGER-TERM More clients in retirement need long term advice, my oldest client is

4 GROWTH BUT CHALLENGES TO OVERCOME Key challenges you are facing Service delivery Recruitment 28% of firms employing advisers expect to increase numbers this year (55% in larger firms) and only 3% expect numbers to decrease. Regulation 36% of the Mortgage Network see regulation & compliance as the biggest challenge. Costs 51% expect to see operating expenses increase in the next 12 months and many of you expect part of this to be passed on to clients, which may further challenge value perceptions. 30% of the Wealth Network see ongoing delivery of service efficiently/effectively as the biggest challenge. Many of you see significant challenges in recruiting advisers who can drive business growth effectively. You do not regard Robo-advice as having a clear role in the advice market (yet?) Despite being flavour of the month among trade press and pundits, you have not yet seen any substantial impact from the emergence of Robo-advice, and few of you see technology as a key driver of growth. Looking ahead, 2 in 5 of you do not foresee any direct impact. Where you do foresee impact, views are mixed. Some of you perceive a threat to your business model, driving younger, more tech-savvy clients away from traditional face-to-face advice. Only 2% see technological developments as a key growth driver On the other hand, a similar number of you perceive potential benefits, where consumers experience unsatisfactory outcomes, and turn to you for a more holistic and personal service. It may confuse clients as much as it helps them. If they don t really understand what s going on or how it affects their overall financial future, then it may push them to seek financial advice. Not sure yet, but we clearly need to find a way of getting on board with it my opposition is not going to halt the train! Perhaps for low level investment servicing. Only 4% plan to offer Robo-advice (18% unsure) 4% A minority of you see some potential in offering this as a low-cost option to smaller accounts with simple needs or a tool to attract clients at the start of the journey. 04

5 DIGITAL LIMITED MARKETING ACTIVITY You currently see marketing as having a limited role Most of your turnover is delivered from your existing clients. It is natural, therefore, for you to focus your time on this over marketing your businesses to attract new clients. 73% see referrals and word-of-mouth as more important than marketing 73% The vast majority of you see word-of-mouth and referrals as more important sources of business than marketing. Just over 1 in 3 of you say you currently run direct marketing campaigns (although this is more likely in larger businesses). At present, you clearly feel targeting existing clients is more beneficial to your businesses. 36% 36% currently run marketing campaigns Positive impact from direct marketing on business growth 43% 28% Existing clients New clients 36% do not have a website (46% among sole traders) Only 8% see websites as a tool with the potential to bring in new business Clients can see a digital presence of your business which gives confidence in who you are. and your usage of websites is limited One in three of you say your business does not have a website, and only just under half have a website on which the content is regularly updated. This is despite growing consumer usage of the internet * and increasing use of organisations websites to interact with them **, not to mention the need to demonstrate trust/ credibility to consumers. Those of you with a website see its main role as increasing business visibility and providing information to clients. *ONS, Internet Users in the UK, **Institute of Customer Service, UK Customer Experience Report, January

6 DIGITAL BUT DESIRE FOR SUPPORT USING DIGITAL CHANNELS is your key direct marketing channel, supported by hard copy and telephone Those of you running marketing campaigns are most likely to use , and are also most likely to see this as the most effective format. Printed brochures are also important, particularly for those of you working in larger businesses, whereas simply picking up the phone is the second most popular approach for sole traders. Social media activity is currently limited and less than one in three of your businesses have a LinkedIn profile. Very few of you use social media for business marketing campaigns at the moment. Those of you in larger businesses are, however, more likely to run campaigns in this channel, and also to use a wider range of platforms, including Twitter & Facebook. 24% use for direct marketing campaigns 12% use printed brochures for direct marketing campaigns (25% of larger businesses) 8% use social media for direct marketing campaigns You have a strong desire for support in developing digital platforms as effective marketing tools Despite limited usage of digital channels at the moment, almost half of you feel that your businesses would benefit from support in using either websites or social media more effectively. You clearly see this technology as having the potential to help grow your businesses in the future. Those of you working in larger businesses are more likely to feel a need for support in developing social media channels (62%). 48% say they would benefit from support to use a website more effectively Only 30% have a LinkedIn presence 42% say they would benefit from support to use social media more effectively We don t use Facebook/ Twitter etc and this might generate some new business markets we don t currently benefit from. How to use social media compliantly. More efficient website that appears near the top of searches. 06

7 PARTNERSHIP POTENTIAL BENEFIT IN FORMALISING LONGER-TERM STRATEGIC PLANS You have confidence in maintaining your current business models DURING THE NEXT 3 YEARS Most of you expect to focus on either organic growth or continuation of existing business models over the next 3 years. Those of you with larger businesses ( 400K+ turnover) are more likely to foresee acquisitions (53%) fuelling your growth, while also remaining focused on maintaining current business models. Of our smaller businesses and sole traders, over 200 of you will be looking to sell your business in the next 3 years (16% of businesses with < 100K turnover). Some of you will be looking to fully retire, but the majority are seeking to capitalise on what you have created while continuing to work as an adviser with the business that acquires you. 47% see the main focus as organic growth 48% do not anticipate considering any significant structural change to the business.but your businesses would benefit from further support in strategic business planning for long-term continuity Almost 2 in 3 of you have a longer term strategic business plan however only 11% of you say this has been documented. The majority of you see principals/ key advisers as central to the continuing operation of your businesses. Nevertheless, few of you have succession plans in place. Those of you in larger businesses are more likely to have planned for succession, but these plans remain largely informal. There is a potential need for further support in this area, to help your businesses formalise long-term continuity planning, and plan the longer-term success of your businesses. 63% 63% have a longer-term strategic plan for the business, but only 11% documented 69% say the business could not operate without principals/key adviser 37% have a succession plan in place, but only 9% documented 07

8 Intrinsic Financial Services Ltd. Wiltshire Court Farnsby Street Swindon SN1 5AH Tel: +44 (0) Fax: +44 (0) Independent specialist financial agency Gusto Research carried out the survey. 398 online interviews were conducted during January 2017, with principals from a cross-section of businesses in the Intrinsic network. 08