Financial advisers today face many challenges in their day to day roles due to increased work pressures, a challenging economic climate and growing client demands. Recent advancements mean professionals in the industry are required to juggle various responsibilities, growth targets and duties.
“2024 has been quite a turbulent year for professionals in the financial advice sector. An uncertain economy, fluctuating inflation rates, changing regulations especially around the Consumer Duty and a talent shortage has added pressures and work strains to jobs and responsibilities. However, 2025 brings new opportunities, especially around the adoption of technology. Those firms who deploy tech solutions quickly will see huge advantages, especially around risk management, efficiency and revenue”, says Alex Merrick, Client Director, Financial Services, IDEX Consulting.
If you’re considering your career options across the Wealth Management sector or need support with your hiring strategy get in touch with Alex Merrick, who will be happy to help.
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Challenges
Economic pressures
The financial industry continues to face unique pressures and continued uncertainty. Financial advisers in particular are navigating a challenging economic environment seeing slow growth and high interest rates. When looking at the current state of investment plans against the cost of living crisis, 53% of advisers reported that some clients have needed to change their investment plans (Schroders: What are the key challenges facing financial advisers in 2023?).
Regulators are moving forward with stricter standards as Brexit prompts changes to EU-based regulations. The FCA has recently investigated the internal practices and processes within financial firms and remains focused on enforcing Consumer Duty (FCA: Consumer duty implementation good practice and areas for improvement). Maintaining compliance with updated regulations can be expensive as well as time consuming. In addition, the link between Consumer Duty and ‘price vs value’ will add pressure on advisers to effectively communicate the value of navigating clients through turbulent market conditions.
The recession is yet another threat financial advisers are facing. Being a natural part of the economic cycle, 2025 will not be the first nor the last time the risk of recession occurs. The outcomes of a recession can be catastrophic for firms that are not sufficiently prepared (RocketFin: Facing the future: the top challenges for financial services companies in 2024).
To mitigate risk, firms should establish a robust risk management framework. Frameworks should incorporate stress testing and scenario analysis along with contingency plans that are tailored to managing risks associated with any potential recession (McKinsey: Derisking AI: risk management in AI development). With the tax changes announced by the government financial advisers must ensure they have the necessary intelligence and data to advise clients on their investments in an informed and timely manner (Financial News: What concerns UK financial advisers in 2024).
Inflation and client expectations
The relationship between money and emotion is a psychological area that financial advisors will be acutely aware of and able to manage. Requiring ongoing effort, advisors must continuously show the value they bring to a client’s wealth portfolio, investment returns and interest rates.
With interest rates remaining near historic lows, it has been tough for those who rely on income from their investments. Advisers have frequently added higher-risk assets to portfolios but there is a potential for these to lose value with inflation and rising interest rates (Lloyds Bank: What is inflation and what does it mean for your money).
Over the past couple of years inflation has surged to an unprecedented 20-year-high which has landed financial planners and advisers in an unfamiliar environment, facing a new level of the ‘unknown’ (Professional Adviser: Inflation and financial planning – focusing on the bigger picture). The amount of uncertainty has created scenarios where advisers are unable to use old data modelling and financial analytics to justify market predictions and assumption, leading to increased client scrutiny and potential risk of diminished trust.
Artificial intelligence
Artificial intelligence should be integrated strategically to enhance an already well-functioning system that is based on human connection, skill, and empathy. Increased reliance on technology has the potential to create an environment which neglects social skills essential for the profession. In a similar way to how financial advisers warn clients against impulse investment decisions led by herd mentality, the same caution must be applied to artificial intelligence (GOVUK: The benefits and harms of algorithms: a shared perspective from the four digital regulators). Failure to do so could create devastating financial outcomes for clients and a risk of credibility damage for financial advisers.
Another crucial challenge which impacts financial advisers is the implication AI has on fraud, making it more seamless and frequent across the industry. Financial advisers are targeted with convincing communications every day, making the likelihood of a hacking incident more of a ‘when’ rather than an ‘if’ (FTAdviser: How to assess AI’s threats and opportunities). Financial advisers invest a huge amount of time and effort building client relationships which can be easily sabotaged with a cyber-attack.
Open communication, trust, strong client relationships and empathy is the foundation of effective financial advice practice, which AI cannot replace. (IFA Magazine: Before AI met wealth management & the tech challenges we forget about). AI tools can be misleading, resulting in inaccuracies, technical errors and misguided algorithms. Tools and software systems must therefore be seen as a powerful addition rather than a reliable holistic solution.
Although there are risks associated with AI, it also offers a number of opportunities especially regarding automation and speed. Financial Advisers who use voice-controlled automated financial planning software are able to better inform their clients.
If you’re looking for support with your hiring strategy or looking for a new career opportunity contact one of our Financial Services consultants.
Sources:
Before AI met wealth management & the tech challenges we forget about - IFA Magazine
FCA: Consumer duty implementation good practice and areas for improvement
FTAdviser: How to assess AI’s threats and opportunities
FTAdviser: Ignoring AI is the biggest threat to adviser survival
Financial News: What concerns UK financial advisers in 2024
GOVUK: The benefits and harms of algorithms: a shared perspective from the four digital regulators
IFA Magazine: Before AI met wealth management & the tech challenges we forget about
Lloyds Bank: What is inflation and what does it mean for your money
McKinsey: Derisking AI: risk management in AI development
Professional adviser: Inflation and financial planning – focusing on the bigger picture
RocketFin: Facing the future: the top challenges for financial services companies in 2024
Schroders: What are the key challenges facing financial advisers in 2023?
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