The advice industry is facing a capacity crunch as large numbers of advisers are approaching retirement but not enough are being recruited to follow in their footsteps.
Currently, three quarters of advisers are aged 40 and above, and there are real concerns that not enough young talent is being hired.
A Freedom of Information request from the Financial Conduct Authority, submitted by FTAdviser, showed 74 per cent of the 31,144 individuals authorised to provide retail investment advice were over the age of 40 and a mere 8 per cent were under the age of 30.
In addition, only 426 advisers in the UK are under the age of 25, compared to 4,824 who are over the age of 60 and thinking about retirement.
Many advisers will just not have an obvious successor for their firm.
Martin Brown, managing partner at advice business Continuum, said it was “clearly a potential problem for us all” that there are not enough young advisers to plug the gap when older advisers look to retire.
“The issue of the lack of young talent in the industry is also narrowing the options open to older advisers looking to retire when considering the next stage move for their business,'' he said. “Many advisers will just not have an obvious successor for their firm.”
According to the FCA data, the problem is slightly less acute in the mortgage industry, where 12 per cent of the 35,889 individuals authorised to provide mortgage advice are under the age of 30, while 61 per cent (22,016) are over the age of 40.
The issue dates back to the retail distribution review (RDR), implemented at midnight on 31 December as the year changed from 2012 to 2013, which introduced a number of changes and required financial advisers to be qualified at level 4 or above, equivalent to a certificate of higher education.
Prior to the RDR advisers only required a qualification at level 3, equivalent to A-levels, and many came into the profession via banks and insurers.
Only 426 advisers in the UK are under the age of 25
But due to the extra studies and exams a number of advisers decided to quit the industry, leading to what has become known as the ‘advice gap’.
Previous estimates from the then Financial Services Authority (the forerunner to the FCA) put the number of retail investments advisers at the end of 2011 at around 40,000.
As of July 2013 there were 32,690 retail investment advisers working in the UK, a 5.9 per cent increase from the number in the industry as at December 2012.
And while these studies and exams have arguably helped the industry to be seen as more professional, a significant contributor to this advice gap is that not enough young people are seeing advice as a full-time career option, so not enough are joining to replace all those who are reaching retirement.
In fact, the qualifications might be off putting to some. Chartered wealth manager Philip Milton (pictured) said it could be difficult to try and encourage people to do the exams, which was why his firm was doubtful about recruiting young trainees.
Milton said: “We are just taking on a couple of young people at the moment and we will talk to them about the exams and everything else, but at the back of my mind I am cynical.
“Give it two or three years and they'll either not have wanted to do the exams or they'll think they can get paid more working down the local pub and so the whole cycle will restart. It's very frustrating.”
What are the institutes doing to help?
For advisers to be able to operate they need to have obtained a Statement of Professional Standing from any FCA-accredited body.
These bodies run level 4 diplomas (and above) for people to become financial advisers.
But while they have a good number of people qualifying each year, it is not enough to plug the gap left by people leaving the profession.
For example, for its level 4 Diploma in Investment Advice, which was specifically developed to comply with the examination standards of the RDR, the CISI has seen 902 people qualify over the past five years.
Whereas, according to the CII, between June 2019 and July 2022, 583 members achieved Fellowship of the Personal Finance Society, 117 members completed the Advanced Diploma in Financial Planning during the same period and 1,081 achieved Chartered status.
It's very frustrating.
Caroline Stuart, president of the PFS, re-emphasised the need to attract more people to the profession as vital for its future, given the number of those expected to retire in the coming years.
Stuart said: “One of those priorities must be around attracting more people of all backgrounds, ethnicities and ages with the goal of creating a profession as diverse as the public we serve.
“It is the job of myself, the board, the leadership and our members to show that a career in financial planning is worthwhile, fulfilling and can deliver progression for anyone.”
It is the job of myself, the board, the leadership and our members to show that a career in financial planning is worthwhile.
The CISI said it was trying to make financial planning more visible to the next generation via events such as ‘Change’ which the institute runs in partnership with Next Gen Planners, and which aims to share career opportunities with students and graduates.
CISI head of financial policy and engagement Chris Morris said: “Making the financial planning profession more visible to the next generation is paramount.
“Events like Change will put financial planning as a career on the map for many students, as will partnerships with schools and universities.”
But some in the profession think these bodies need to be doing more.
Andy Payne, head of academy at St James's Place, said the institutes and big players in the industry should be working together.
“We all need to show a little bit more patience and thinking if we're going to invest in younger talent,” he said. “The professional bodies and the big players need to present what this business is about and highlight that it is about positively changing people's lives.”
Ella Faulkner, who is studying to become a qualified adviser with Openwork, agreed professional bodies needed to do more as young people were not being exposed enough to advice as a career path.
Faulkner said: “A lot more can be done within schools and at universities. Whether it's having ambassadors from companies like Openwork or from the CII or other professional bodies to talk to students.
“At university I was just told about accountancy and law and standard professions like that. But when I joined Openwork, I was opened up to advice and it's not just about being a financial adviser, because there are also roles such as paraplanners and administrators.”
Since the RDR, the profession has seen several adviser academies pop up to help bring young talent into the industry.
This is a trend which has continued, with academies evolving and expanding, and new ones appearing in more recent years.
SJP’s adviser academy was founded in 2012 whereas the Openwork Partnership opened its own training centre back in 2014. More recently Quilter established its financial advice school in 2018 and M&G Wealth has been operating its academy for one year after it opened in September 2021.
But there is a concern that these academies are not bringing in the numbers needed to replenish the shrinking pool of advisers, with each enrolling only a few hundred graduates each year.
SJP has the largest intake, having had an average of 201 new individuals join its academy each year over the past five years (2017-2021). The firm said it was looking to grow the number of entrants to its academy in the future.
The Openwork Partnership has seen 69 people enrol so far this year across both its wealth and mortgage and protection programmes. From 2018-2021 it has had a total of 544 candidates.
From 2017 to 2021, Quilter had 434 people graduate from its programme, with a slight drop in recent years due to Covid. Meanwhile, M&G Wealth aims to take 24 candidates per quarter.
But the academies themselves have admitted more needs to be done.
Tom Hegarty, partnership director at M&G Wealth, said one of the main issues was that smaller IFA firms, of which there are still many, struggled to grow their business with trainees.
He said apprenticeships should work in tandem with academies so that both smaller and larger firms were training and bringing new talent to the profession.
He said: “The challenge for these firms is how do they train? How do they train that individual and get them up and running? They can't always go to the academies because the academies would not necessarily offer training to an IFA firm, but this is where apprenticeships come in.”
Back in 2016, the CII said it would support the government in making apprenticeships a viable alternative to graduate trainees via its apprenticeship levy. Introduced in 2017/18, this is a UK tax on employers which is used to fund apprenticeship training.
It was hoped this would help get more trainees into the profession as advisers can access this government funding and take on an apprentice.
Academies would not necessarily offer training to an IFA firm
Dennis Hall, chartered financial planner at Yellowtail Financial Planning, said he was a fan of the idea of apprenticeships but in practice it was often hard to find apprenticeship providers, particularly in the south west of the UK where he is based.
Hall said: “Even when we have looked at doing it remotely, providers have said ‘we are not taking on as we do not have the capacity’.
He added local colleges did not cover financial services and universities did not offer advice as a subject, which was an issue that needed to be addressed so that more people could know about, and therefore enter, the profession.
The lack of talent is also evident in recruitment with more roles currently to fill than there are candidates.
Sam Oakes, founder of Recruit UK – a financial services recruitment consultancy, said: “Everybody's looking for an administrator, a paraplanner and would love a qualified financial adviser with transferable clients. [The issue we have is] there are not enough candidates out there.
“If we get somebody who's a great paraplanner and is actively looking for a role, I can put them into companies for interviews and this individual could probably generate a £10,000-£15,00 salary increase. So it's a candidate-driven market.”
This sentiment was echoed by financial services recruitment expert Rachael Fennessey, who said recruitment for advisers was “candidate lead at the moment” with “tonnes of opportunities” available.
But Fennessey is concerned that going forward firms will not be willing to invest in the younger generation, especially if the country faces an economic downturn.
“With talks of recession people will cut back on their investment, and the things they will cut back on will be things like investing into trainee advisers but the profession is at a point where it needs to be the other way,” she said.
“It is a massive issue and over the next decade three fifths of advisers are actually going to be leaving the industry.”
We don't have the support network behind us to really train them
Oakes was also concerned that advice firms are not willing to take on trainees - something he said needed to change.
Echoing Hegarty’s concerns, he explained that smaller advice firms with only a couple of employees found it difficult to take someone from “zero to hero” because it was a “huge investment” in terms of both time and development costs.
What’s more, if their retirement involves selling the firm, there is no incentive to train people up.
“These firms are not built to have a structure for newbies coming through the process,” Oakes said.
“A lot of older guys are already thinking about their exit. So if they're thinking about an exit from a sales perspective, then they are not bothered about hiring a trainee.”
Hall said not having a support network was a big barrier to take on and train younger people.
He said: “We don't have the support network behind us to really train them so instead they get slung into the job and it's up to whoever they are working with to try and bring them along. But that's not ideal.”
Milton, on the other hand, said he was scared to take on younger advisers in case they left the firm for other opportunities after he had invested in their qualifications and training.
He said that often people are enticed by bigger salaries made by larger firms, something with which smaller firms cannot compete.
Stakeholders say there is no one solution to getting more people to join the advice profession but several things could be done by firms, professional bodies and trade bodies to promote the benefits of a career in advice.
Firstly, it is hard for young people to want a career in advice if they do not understand what an adviser does, or that this vocation even exists.
Therefore, it one solution should be for more advisers t0 go into local schools and colleges and give talks to students, both about money and the value of advice.
Some advisers already do this, according to the Personal Finance Society, but more could follow their example. This way, students across the UK could see first hand what it is like to be an adviser, and can see this as a genuinely attractive route to go down when they finish their school exams.
Secondly, the perks of a career in advice need to be promoted by the profession.
A great work/life balance, being able to work whatever hours suit best, meeting people day in day out, and a good salary are all things which could tempt younger people to the profession.
SJP's Payne said financial education had a huge part to play because it was a natural route to presenting the profession as a ‘vocation’.
If more people knew about money, naturally more would know about the financial advice profession and could see it as a viable career path.
Payne said: “We can all help younger generations be more savvy with finances now, and then suddenly the industry becomes more interesting and relevant.
“Then the whole idea of getting into this profession becomes much more appealing, when they realise there is a possibility for it to be a rewarding career on a number of levels, not just financially but also in terms of what they can get out of it.”
Others think more needs to be done at an earlier age, for example in schools, colleges and universities to promote advice as a career alongside other professional service careers such as law and accounting.
Karen King, programme director of management and professional development at the Openwork Partnership said financial advice should be promoted not only as a career but also in terms of how important it is for the general public’s financial wellbeing.
But King said she understood how becoming an adviser could be daunting for the younger generation as they are often sitting in front of a client who has much more experience of life, which is why soft skills are just as important as qualifications.
“I think the beauty of what we offer is very much around not only giving them credibility and having qualifications, which is obviously needed anywhere in the industry, but some of the professional skills so that they can feel much more competent and confident having conversations and that's a key part of building that trust,” King said.
“If you can come across confident in what you do and feel empowered now to be that individual that you want to be in 10 years' time, this actually goes a long way and we have a lot of support in place to help with that.”
For example, Openwork has just introduced a programme using actors to replicate client adviser scenarios so that less experienced advisers can practise their skills before facing a real client.
Young advisers can learn their trade behind the scenes first to understand how all the moving parts work
Julian Hince, head of the Quilter Financial Adviser School, agreed the solution to adviser shortages had to be found in a combination of things.
He said while some students could make a transition into advice sooner rather than later because they had the life skills and experience, others might come across more green faced and some clients may not want “a kid with no grey hairs” advising them.
He said: “Clients want people who have bought a house, who have experienced bereavement, who have had kids, because that's what they will be advising on - stuff that happens in life.”
However, Hince added this did not mean that those of a younger age, perhaps closer to school leaving age, should be excluded from entering the profession.
He explained that paraplanning was the most obvious answer to this issue.
Hince said: “[Through paraplanning] young advisers can learn their trade behind the scenes first to understand how all the moving parts work - liaise with providers, write reports, do all the research and understand how advice works, and what is appropriate, while working closely with a more experienced adviser.”
Hince said these paraplanners could then go on to be the advisers of the future or stay in paraplanning, whichever took their preference.
Whereas, Continuum’s Brown said a succession scheme could be used to bring in more advisers.
He said: “At Continuum, we are finalising our succession scheme (My Continuum Succession) that we are excited to be able to launch later this year. This will allow Continuum to offer a home for life for advisers, clients, staff and future generations to come and importantly clear pathways for those advisers at various stages of their business cycle.
“We also believe that a partnership model can be very attractive for younger advisers.
“A national partnership model enables younger advisers to tap into the knowledge, experience and specialisms of others within the business without losing control of the strong individual relationship they have with each of their clients. They can be as one behind one brand and identity while maintaining a sense of ownership.
“We have a constant steady flow of high-quality young advisers looking to join our partnership, and our advisers tell us that they feel much closer to the business than they have in previous roles.”
It is clear there is not one simple solution and, despite these various efforts, a capacity crunch could be on the horizon for advice if more young advisers do not join the profession soon.
But for anything to work there needs to be systemic change and some proper, joined-up thinking across the industry.
Adviser firms need to be more willing to invest in and train young advisers, and the big academies need to help these smaller firms by assisting them with their training needs.
Networks need to avoid poaching young talent from smaller firms with the offer of larger salaries, to encourage more training to happen at a lower level.
And the accrediting bodies need to really promote advice as a career and all the perks that come with it, so the profession becomes more visible among school leavers.
Clearly, more young advisers are needed to plug an ageing profession. But, as with everything else in life, it will take some time. Whether the industry has that time is another story altogether.