Although the UK economic environment looks a lot more stable than it did a year ago, high interest rates, geopolitical uncertainty and regulatory changes will continue to dominate the thinking of investment advisers in 2024.
The next 12 months are likely to bring a whole host of new challenges, but there will also be opportunities for advisers to future-proof their business and showcase the value of advice.
Below, I have summed up five of the biggest issues facing investment advisers in 2024.
High interest rates on cash
Following a run of 14 consecutive rate hikes, interest rates on cash look more attractive than they have for many years.
Clients might be wondering whether it is worth being invested, particularly when the geopolitical environment remains uncertain, and finances are being squeezed by the high cost of living.
While clients should ensure they have secure liquid assets to call upon for the immediate term, history shows that over time stock markets reward the extra risk that is taken.
For an investor putting £100 in cash savings at the end of 1996, their money would have grown to just £115 by September 2023 after adjusting for inflation. However, if they had invested £100 in the FTSE All World, it could have grown to nearly £470 on a total real return basis (before fees).
Holding an appropriate portion of money in invested assets helps to protect wealth against inflation and reduces the degradation of returns when interest rates start to fall. Market expectations indicate that UK interest rates are likely to reduce at some point in the second half of 2024.
Consumer duty starting to bite
The consumer duty came into effect on July 31 2023 and is now starting to bite, resulting in many adviser firms recalibrating their businesses where appropriate.
Central to this shift is the Financial Conduct Authority’s scrutiny on client segmentation, advice fees and value.
The consumer duty is increasing pressure on firms that run a centralised investment proposition or a centralised retirement proposition. This is because firms need to provide evidence on an ongoing basis of how their CIP or CRP segments clients to meet their individual needs.
One way to reduce this burden is to outsource the responsibility for creating and managing investment portfolios to a discretionary fund manager.
Platform and product fees have reduced considerably over the past 15 years, while fees for discretionary fund management and model portfolio services have also reduced in the past five to seven years.
Now, the regulator is looking at adviser fees and whether they are offering value for money.
With the value of advice being questioned in an economic downturn and cost of living crisis, this scrutiny will likely continue in 2024 and beyond.
New regulations
The next year brings another important set of regulatory requirements for the financial services industry.
The FCA’s sustainability disclosure requirements policy aims to clamp down on greenwashing through a new labelling scheme for sustainable investment products, the imposition of disclosure requirements, and restrictions on using sustainability-related terms in product names and marketing.
