Small advice businesses will continue to thrive despite the ongoing trend for firms to consolidate with larger networks, according to NextWealth's latest report.
NextWealth’s Future of Financial Advice report said small firms with £10mn in revenue will have defined "a robust operating model" and will have a partner for compliance support which enables them to thrive.
According to NextWealth, these firms will adopt a single source tech stack and will focus on a client niche or local community.
Heather Hopkins, NextWealth managing director, said: “In spite of a long history of small and micro advice firms, our prediction that small firms will thrive in the future seems to fly in the face of existing views.
“However, our research highlights that while there is a high and sustained level of consolidation, this remains matched by the replacement rate of small advice firms spinning out of larger corporates and new registrations.”
The report classified small firms as those with up to 100 employees and £10mn in revenue.
However, it claimed the way the size of firms is measured is likely to change, moving away from assets and the number of advisers to instead look at employee numbers and revenue.
Technology
Hopkins said to meet growing demand in the coming year, firms will use technology to meet the needs of clients.
She said: “We found that regulation is regarded as hindering the growth of the advice market, although everyone we spoke to emphasised the importance of a good regulatory regime and framework.
"The regulatory burden is felt acutely by the small firms that continue to be vital to the profession, and tighter regulatory oversight of significant numbers of such firms is currently a major challenge.
"We predict that AI will be used to support the scaling of compliance checking, which should help small firms to present a more manageable interface with the regulator.”
This is important as it is expected that the number of clients served by advisers will grow by 30 per cent.
Hopkins said firm would use segmentation models to define propositions, making use of tech and investment solutions.
She added: “The concept of spending two or three hours at particular life moments face-to-face with a trusted adviser will not disappear, but where it suits client needs and preferences, they will increasingly self-service and interact with other members of their client service team.
“Notably, firms will increasingly use a team-based approach to supporting clients, backed by slick processes, increasing capacity for firms that seek to work with a larger number of clients.”
tara.o'connor@ft.com
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