When looking at what is in store for advisers and clients, it is possible to find cause for optimism – if you look hard enough.
When it comes to the financial landscape through which advisers are navigating clients, it seems highly likely that inflation will fall further in 2024, taking interest rates down with it, although many experts predict the latter will not happen until later in the year.
That is the good news.
On a less positive note, the next 12 months are widely expected to be characterised by economic stagnation and a cost of living crisis that is only slowly abating.
The Institute of Fiscal Studies forecasts that real household disposable income will shrink further in 2024, thanks to interest rates staying higher for longer and ongoing tax rises.
According to the National Institute of Economic and Social Research, UK GDP is projected to grow by just 0.4 per cent in 2024, with a 60 per cent risk of entering recession by the end of the year.
It also expects inflation to remain above the government’s 2 per cent target until 2025, falling to around 3.9 per cent by the end of 2024.
Challenges for clients
All the signals point to challenging times ahead. While inflation and the wider financial situation will affect some clients more than others, advisers have a big job on their hands.
The cost of living crisis has already seen record outflows from advised platforms.
According to data from the Lang Cat, total outflows from advised platforms reached £38.1bn in the first three quarters of 2023 – 30 per cent higher than the £29.2bn recorded in the same period in 2022.
The consultancy says the increased outflows are down to more clients struggling to deal with cost of living challenges or moving from investments to cash amid market uncertainty.
Those approaching or in retirement are likely to be feeling particularly concerned about their finances.
More than two-thirds (67 per cent) of advisers surveyed recently by BNY Mellon said they think clients will have to postpone retirement due to the cost of living crisis, while 56 per cent expect retired clients to reduce pension withdrawals in order to protect their pot, and 15 per cent think some clients may be forced to return to work.
Around two-fifths expect to see more clients using housing equity (44 per cent) and cash savings (42 per cent) to meet income requirements over the next few years.
Challenges for advice firms
All of this adds up to tricky times for advisers too, especially when clients are cutting back. Firms are charged with helping clients through a crisis that is also impacting their own ability to remain profitable.
While raising fees to offset higher costs may be an option for some firms, for others it can feel hard to justify increasing charges in the current environment, especially with the recent consumer duty spotlight on delivering value.
