The measures are designed to improve consumer confidence in this sector and lead to more consistent and informed client conversations.
The proposals are initially aimed at asset managers but are likely to be extended to other sectors over time.
The FCA has also been busy surveying firms to gather information around the quality of retirement income advice.
We are currently waiting for the FCA’s next communication, but this could be a good time for firms to ensure their retirement income advice process is fit for purpose, particularly in light of the consumer duty requirements around client segmentation.
Tax changes
April 2024 will see further reductions to the annual capital gains tax exemption and dividend allowance. These will be halved to £3,000 and £500, respectively.
Whereas CGT and dividend tax were previously seen as issues only affecting the very wealthy, cuts to these allowances could see many more clients breaching their tax-free allowances and facing hefty tax charges as a result.
The next 12 months could also see clients facing higher income tax bills as a result of fiscal drag (when more people are dragged into paying tax or paying tax at a higher rate as a result of inflation).
Despite high inflation, the personal income tax allowance and higher-rate tax threshold have not been increased since April 2021 and are due to remain frozen until 2028. This could see more people drifting into higher tax bands because of inflation.
RBC Brewin Dolphin analysis shows that an individual who earned £50,000 in 2021, and whose income rises in line with actual and forecast consumer price index inflation, could see their income tax bill rise from £7,486 to £15,094 by 2028.
One way of managing CGT and dividend tax is to invest clients’ money in a discretionary portfolio.
Discretionary portfolios are made up of individual holdings and this offers a significant amount of flexibility when it comes to managing tax allowances. When an underlying holding is sold, the profit or loss immediately contributes to that tax year’s allowance, which helps to prevent gains (or losses) building up over time.
Future-proofing advice
The recent acceleration in the adoption of generative artificial intelligence tools shows no signs of abating.
According to a report in Forbes, the UK AI market is worth more than £16.9bn and is expected to grow to £803.7bn by 2035.
Around one in six UK organisations have embraced at least one AI technology. Could 2024 be the year that AI starts to be adopted by financial advice organisations to enhance administrative efficiencies? It is certainly something for advisers to consider as they look to future-proof their businesses.
Looking further ahead, advisers may want to start preparing for the ‘great wealth transfer’ (the transfer of assets from one generation to the next), whether that is by increasing diversity within their firms or considering how to make financial advice relevant and appealing to the next generation.
