85% of UK financial advisers report feeling the impact of the new Consumer Duty regulations. At the same time, they are increasingly turning to new technological solutions to cope with the tightening regulatory environment and moving their focus to clients with deeper pockets.

UK Financial Advisers Adapt to Regulatory Changes

The latest 2024 UK Adviser Technology and Business Report released by research firm Investment Trends highlighted the profound impact of Consumer Duty regulations on the industry. The in-depth study of 1,252 financial advisers conducted between February and March 2024 showed that 7 out of 8 advisers reported adverse effects of these regulations, leading to more rigorous record-keeping and intensified client interactions.

Additionally, a third of advisers have adjusted their pricing models to demonstrate value for money, reflecting a proactive adaptation to regulatory expectations.

"Consumer Duty regulations have resulted in profound changes across the financial advice sector,” said Lorenzo Vignati, the Associate Research Director at Investment Trends. “With the majority of advisers reporting significant impacts on their operations, we're witnessing a shift towards more rigorous compliance and client-focused strategies."

The study also highlights a strategic shift in advisers' client focus, with a growing emphasis on high-net-worth (HNW) clients to maintain stable inflows. As a result, the average number of active clients per adviser has decreased over the past year.

“This reduction reflects a strategic narrowing of client bases to those that are more profitable,” Vignati stated.

Consumer Duty regulations, which came into effect last summer, aim to ensure financial firms deliver good outcomes for retail customers. Firms must act in good faith, avoid foreseeable harm, and enable customers to pursue their financial objectives.

Advisers Embrace Tech Solutions

The report also reveals a growing reliance on technology among advisers seeking to improve business outcomes. However, satisfaction with existing platforms has declined sharply, with only 12% of advisers rating their main platform as “very good,” down from 21% the previous year. Poor service levels and cumbersome administrative processes are cited as the primary reasons for this decline.

In response to these challenges, advisers are exploring new technological solutions, with the average number of platforms used per adviser increasing from 2.4 in 2023 to 2.7 in 2024. This trend signals a broader acceptance and need for diverse technological solutions in the industry.

"Advisers are increasingly turning to technology in pursuit of improved business outcomes,” added Vignati. “However, our findings show a sharp decline in satisfaction with existing platforms, underscoring the urgent need for platforms to enhance their service and usability."

The UK advisers and asset managers industry was also the subject of the latest speech by Ashley Alder, the Chairman of the Financial Conduct Authority (FCA), this week during the Bloomberg Buy-side Forum. Regarding technology, he mentioned that there is growing interest in the topic of potentially tokenizing funds and the potential benefits of such a solution.

A few months ago, the FCA checked how financial firms were coping under Consumer Duty, in light of the issues that the new regulations had caused for both the regulator and the licensed entities.