Building on two waves of research conducted last year, a separate complementary IFA DNA report considers how advice businesses are preparing for the future. The study explores whether working practices will revert back to how they were before the pandemic and assesses how the demand for advice will change over the next few years. A key insight is that firms are very bullish on their growth prospects as they plan ahead for the post-pandemic world. In fact, nearly two thirds (60%) of advisers say their firms are looking to grow their assets under advice organically over the next three to five years.
How will the pandemic impact the need for advice over the next five years?
Advisers are predicting a renewed focus upon the importance of financial planning to drive growth within the advice market over coming years, according to our latest research from FundsNetwork, Fidelity International’s adviser platform.
The findings are revealed in FundsNetwork’s second ‘ IFA DNA’ report, with more than half (55%) of advisers expecting the number of people seeking financial advice to increase within the next five years*. More than two-thirds (68%) anticipate a growing awareness of financial planning to drive this demand, with market uncertainty (58%) and shifting personal circumstances (58%) also playing a part. Continued trends, including demographic shifts (33%) and improvements in technology (16%), are also expected to contribute towards market growth in the near future.
Impact on client’s wellbeing
Not surprisingly, the findings reveal many advisers are concerned about the impact of the pandemic upon their clients’ financial wellbeing. More than a third (35%) of IFAs have seen an increase in the number of their clients experiencing money worries over the past year - with three-quarters (75%) of these reporting a decline in their client’s overall wellbeing and mental health as a direct result.
While most advisers (83%) feel comfortable supporting clients with their financial wellbeing, 13% feel less certain and would like greater support in meeting their needs. Technology (44%) and training (29%) are seen as key in helping to provide solutions.
Future use of sustainable investment strategies as a result of the pandemic
As we emerge from the coronavirus pandemic, advisers believe their use of ESG investments will increase substantially. Indeed, 54% state they will recommend more of these strategies as a direct result of the crisis. This builds on the findings of our earlier IFA DNA survey conducted in the first lockdown period in 2020, where 47% anticipated that their usage of ESG funds will increase going forwards. The use of other types of investment strategies – such as passives – is also expected to increase, although much less so than ESG.
Current vs. future ESG allocation
When asked about the percentage of client assets invested in ESG strategies, advisers expect this to increase noticeably too. Currently, only 12% of clients’ assets are invested in these vehicles. However, this is expected to increase to 30% in just five years’ time. Respondents state this asset allocation shift will primarily be due to a greater focus on sustainability in both the consumer and political landscape. A growing confidence in the returns produced by ESG funds will also have an impact.
The new normal
The results of this IFA DNA survey are quite clear – sustainable and ESG investing is here to stay and will likely become ingrained within most client portfolios within the next five years. Two key statistics from our research support this conclusion. Firstly, advisers state that 56% of clients are now expressing interest in this area of investing – ESG is clearly no longer a niche interest. The biggest barrier to further growth appears to be client concerns about sacrificing returns. However, the performance numbers suggest that these worries are unfounded. Analysis of returns from both the UK All Companies and Global sectors show that ESG-themed funds have outperformed non-ESG funds over three and five years, although past performance is no guide to the future.
To find out more please visit: IFA DNA: Practitioner insights for advisory businesses | FundsNetwork (fidelity.co.uk)
*Source: IFA DNA II based upon research of 200 advisers, February 2021
References to last year’s research refer to two instalments of adviser research (first instalment - research of 202 advisers, January 2020; second instalment - research of 100 advisers, May 2020) carried out by NextWealth
Further information about the IFA DNA studies can be found here.
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