Ready for 2023: Three themes set to dominate advisers’ year

2 min read 23 Jan 23

When it comes to market forces, we think there are three themes which will set the stage for 2023. Alongside economic uncertainty, advisers are having to take on new regulation, while managing clients’ nervousness at the same time.

The start of 2023 may not have provided the clean slate some of us wanted: below you’ll read about some familiar themes which we expect will take up plenty of your thinking time this year. However, as is often the case in uncertain times, they provide scope to demonstrate the enduring value of advice. Providing this support can remind clients that they have someone to rely on, who is focused on their goals.

The cost-of-living crisis

There is only one place to start: the cost-of-living crisis, an umbrella term for squeezes on affordability, income, saving, investing and expenditure.

The advisers we’re speaking to are in some cases re-working clients’ financial plans to account for cost-of-living pressures and a creeping nervousness around investment strategies. Advisers are busy but aren’t necessarily working with ‘new’ money because clients’ ability and willingness to save and invest may have shrunk.

Meanwhile, from a saving and investing point of view, cash, annuities, and options such as ‘smoothed’ funds, are more attractive now than they have been for the past decade, especially relative to the equity market. If advisers can secure a 4% or 5% return on cash with little risk – while still not matching inflation – then that may be looking quite attractive.

Advisers know better than most that things may get worse before they get better. The Bank of England next meets to vote on interest rates on 2 February 2023 (then again on 23 March) and may once again hike the base rate from its current 3.5%. A related point of note: there are around 1.8 million fixed rate mortgages set to reach the end of their deal rate this year.

Support for utility costs is set to end in April. Advisers are in the crosshairs for this because, not only will it affect clients, but it will also impact businesses directly in the form of increased running costs. Advice firms tend to be reasonably well capitalised but will be feeling the pinch too.

One unintended advantage of a squeezed market is the opportunity to underscore the power of professional advice. With advisers working hard to reassure clients and, where necessary, stress-test their financial plans, this is an opportunity not to miss.

The immovable Consumer Duty

Based on conversations with advisers and insights from our latest State of the Adviser Nation (SOTAN) report, there appears in some cases to be a misalignment between how advisers are talking about Consumer Duty (what they are doing in preparation, for example) and how the FCA is talking about it.

The bare truth is that the Duty provides the FCA with a new set of weapons and rules to use, so firms should turn their attention to how the regulator will supervise firms’ compliance beyond July’s implementation deadline. The trick is to read the mood music to see if it tells us anything about which areas the FCA may focus on first.

One clue arrived shortly before Christmas in the form of a Dear CEO letter addressed to intermediaries. “Consumers”, it read, “should receive a value for money service where an ongoing service is offered”. We know that ongoing services are extremely valuable to advice businesses (accounting on average for more than 70% of revenues), and the FCA expects firms to evidence that those services are deemed fair value by clients too.

So, if there is a Consumer Duty outcome the FCA may target in 2023, it’s this one, because it has effectively told us that this is what it will do.

Value for money is connected to our first theme on the cost of living. With firms working with clients to sense check their plans, clients will be experiencing the value of advice first-hand just as the FCA pulls up its microscope. Therefore, the need to evidence what you are doing and record what your clients think about it has never been more important.

Simplified advice

The FCA has taken its first official steps towards rolling out simplified advice. You have until the end of February 2023 to respond to its proposal to create a “separate, simplified financial advice regime, making it cheaper and easier for firms to advise consumers about certain mainstream investments within stocks and shares ISAs”. After that, it’s feasible to expect the regulator to outline how the system will work ahead of introducing it at some point in 2024.

This is a 2023 theme for two reasons
  • Firstly, knowing “how the system will work” is half the job. It means firms interested in adopting it will by year-end have a decent idea about how they’ll implement it.
  • Secondly, calls to address the advice gap are increasing. It’s not yet a clamour but, if you listen closely, there is a low rumble. As part of our latest SOTAN research, we gave adviser recipients a magic wand and a bottomless chest of cash and invited them to declare one thing they would change about financial services with their new wealth and power. Besides the usual calls to reform regulations, the most common wish was to fill/close/narrow (take your pick) the advice gap.

As the FCA has pointed out, narrowing the gap should also have the “significant collateral benefit” of increasing trust and confidence in the advice profession.