I recently highlighted changing demographics and debt as being one of the biggest threats to financial planning. In this blog I want to expand on the way our economy is changing in such a way that we need to change to reflect this.

In a recent presentation the presenter indicated that 54% of the UK population have no savings or investments and that this would increase. Only 22% of the population are “active” risk based investors.

If we unpack the 22%, this is split such that 3.4 million are pure self-directed investors, 5.4 million are both self-directed and advised and 1.5 million are entirely advised. It is anticipated the self-directed market will increase significantly over the coming years, and the advised market will shrink.

Before I explore further how I think the advised market can reverse the trend I want to pick up on a couple of points. Firstly the presentation indicated that 80% of self-directed risk based investors are actually not active – this is a warning sign for the future and secondly there is demand for advice but people don’t want to pay for it and I think a lot of this is around how it is packaged to investors.

Where now for the advice model?

There is a greater desire for the advice model to be seen more as a professional vocation similar to accountants and solicitors. This is very much the US model but I believe this will take many years to attain the same status in the UK (although some financial planners are already seen in that way by their clients).

So there are clearly challenges for the advice model and in a shrinking world the question is how do financial planners thrive – clearly financial planners can go down the self-directed route or phone / internet based advice route but for face-to-face advice how do they survive?

  1. I would argue that as financial planners move towards a more professional vocation the concept of financial planning becomes a commodity, i.e. everyone does it
  2. Cost is a battle ground but shouldn’t be, this is because many people don’t understand the value of financial planning and the service they receive

If we take these two points then to survive financial planners need to own all parts of the strategy including the investment proposition. If they don’t then they need to reduce their fees to reflect a reduced service, some are doing this but many are not.

Picking up on the investment strategy, nearly 50% of financial planners outsource their investment strategy. This will increase for two reasons, a drive to push down costs (although in reality the cost to the client goes up) and because of the audit trail needed to run an investment strategy.

The danger is this – as the investment strategy is more and more outsourced there becomes consolidation in the market and there are fewer and bigger brands meaning the investment investment strategy is not unique to the business and becomes a commodity like financial planning, and ultimately the financial planner is not in control of the investment decisions that deliver the client’s goals.

Investors might not see this now, but they will in the future and they will demand lower fees to reflect this outsourcing. The end result is that margins are squeezed further unless financial planners take control of all aspects of the service proposition.

Reversing the trend

As the market contracts and shrinks, the financial planners who shine will be those look forward and don’t build a business on the past. Financial planning is about road maps and accepting paths will change, it is also ultimately about taking responsibility for the engine that drives the client along path. Only by doing this can the financial planner offer a point of difference, charge and articulate a fee to reflect that difference and ultimately provide a level head when the rest of the world appears to be going crazy (i.e. peace of mind).


The world is changing, debt and demographics are shrinking the pool of those who can invest and perceived cost is driving investors to the self-directed market. This provides opportunities especially in a shrinking advised market but financial planners need to accept that they need to be seen as being in control of the whole package if they are to charge a fee that reflects this, if they are not in control of the whole package then they need to reduce their fee to reflect this and think carefully as to how they articulate what they do.

NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.