Outflows between Q3 and Q4 last year increased by 6.9% at £13.9bn. Q4 outflows alone increased by 51.1% compared to the same quarter last year, when outflows reached £9.9bn.

In contrast, advised gross sales ticked up by 1.9% between Q3 and Q4 last year to £15.8bn, while they increased by 16.5% compared to Q4 last year’s sales of £13.8bn.

Gross sales for the year stood at £63.4bn, a 2.5% fall compared to last year’s gross sales of £65bn.

On a net basis, however, Q4 sales reached a record low for the third consecutive year at £1.2bn – this marks a 70.1% fall compared to net sales in Q4 2022, and a 35.8% fall from Q3 2023. Net sales for the year reached £10.2bn, marking a 60.7% fall compared to 2022’s net flows of £26bn.

In terms of asset growth, total advised assets in Q4 last year were up 9% compared to the same quarter during the previous year, while assets increased by 5.3% between Q3 and Q4 2023 to £546bn.

See also: Empowering consumers for good outcomes

Rich Mayor, senior analyst at The Lang Cat, said the last quarter of 2023 “rounds off the dominant theme of rising outflows hammering net sales” in the advised platform market.

“Gross sales have been steady throughout, but the wider economic conditions mean more money has been taken out of platforms in 2023 than in any other year, with ISAs and pensions bearing the brunt of it,” he explained.

“The results show that the cost-of-living crisis meant financial plans had to be adjusted for a good portion of clients. The main reasons cited were investors supporting themselves and family members with the increase in household expenses, followed by concerns over capital preservation in volatile markets.

“On the latter point, we’ve also noted a shift in advisers’ retirement income strategies, with an increase in the use of annuities for more risk-averse clients.”

Full findings of The Lang Cat’s report, State of the Advice Nation, is due for publication later this week.

This article was written for our sister title Portfolio Adviser

It would require investment advisers to calculate their potential redress liabilities and set aside enough capital to meet them as well as report these liabilities to the FCA.

The regulator has said any firms not holding enough capital will be subject to automatic asset retention rules to prevent them from disposing of their assets.

The Financial Services Compensation Scheme (FSCS) paid out nearly £760m between 2016 and 2022 for poor advice provided by failed personal investment firms, 95% of which was generated by 75 firms.

Sarah Pritchard, executive director of markets and international at the FCA, said: “We want to see a thriving financial advice market to make sure consumers can access the support they need from financially resilient advice firms that want to do the right thing. Diligent advisers are having to compensate through the levy for the bad advice of their failed competitors. That needs to change. It is important that the polluter pays.”

To read more on this topic, visit: FCA to consult on VFM framework for DC workplace pensions

The FCA will be running a 16-week consultation process to seek industry and stakeholder views on the proposals.

Proposals welcomed

Tom McPhail, director of public affairs at the lang cat, commented that these proposals will be welcomed by well-run advisory firms who have to pay the costs of the ‘irresponsible’ actions of a few bad actors in the sector.

He said: “If the capital reserving requirements are too broad or too onerous though, they could become an expensive addition to the cost of doing business in their own right. Hopefully the proposals will take account of the practices and processes of responsible and well-run businesses, thereby ensuring they see a net reduction in their overall cost of doing business as a result of these measures.”

Counterproductive

However, Scott Gallacher, director at Rowley Turton, said that as an IFA he is wary of the proposals as he feels that penalising unsuccessful firms with substantial capital seems counterproductive.

He added: “It also poses a risk to directors, as income through dividends could be suspended, despite existing company law covering such scenarios. This might steer businesses towards alternative remuneration, impacting advisers’ tax positions and discouraging new entrants.

“Consequently, firms may operate with minimal capital, raising doubts about the regulations’ overall effectiveness. There’s a genuine concern that these proposals could inadvertently trigger a race to the bottom in capital reserves, contradicting the FCA’s goal of ensuring stability and consumer protection.”

Burden on smaller firms

Daniel Wiltshire, an IFA at Wiltshire Wealth, highlighted the extra burden these proposal will place on smaller firms.

He said: “In principle, the ‘polluter pays’ framework sounds sensible, however, as always the devil will be in the detail. A concern I have is that if extra capital has to be set aside, regardless of whether the claim is being contested, this could place a disproportionate burden on smaller firms. This would be anti-competitive and ultimately bad for the consumer.”

On the other hand, Steven Levin, chief executive of Quilter, said the firm fully supports the proposals.

While he pointed out that it may create additional work for smaller firms he said that it would be better than current ‘unpredictable’ costs under the FSCS.

He commented: “While it may create additional work for smaller firms, as they will need to rigorously understand any potential need for future redress, it is better than the current unpredictable and significant ad-hoc costs under the FSCS which makes effective business planning difficult and can have a knock-on impact on investment in other areas.

“Through a more rational model for the capital that needs to be set aside and the right support that enables good client outcomes on a consistent basis, firms will be able to invest in the future growth of their business without the uncertainty of unexpected levies derailing their plans.”

The report titled ‘The Impact of Poor Platform Service’ found that 88% of advisers needed to apologise to at least one of their clients on behalf of a platform.

While 89% stated they would invest some or all of the time lost to poor service into taking on new clients.

One surveyed adviser, said: “I am sick of useless service and systems that are clearly not fit for purpose.

“Recent upgrades on some platforms have done little to improve matters if anything they have possibly made things worse- if that’s possible.”

Reasons for getting in contact with a platform included post-sale servicing (42%), chasing up work in existing queues (28%) and technology/process issues (10%).

To read more on this topic, visit: Advised platform outflows reach record high

As part of phase 2 of The Lang Cat’s work they will be partnering with Parmenion and working with the advice profession and the platform sector to assess the scale of the problem when it comes to poor service and make it more clearer and fairer.

Parmenion chief executive Martin Jennings said: “We know that trust in financial services is too low. But to be trusted, you must act in a trustworthy manner. And when part of the chain is broken, trust is eroded.

“This research lays bare the challenges advisers have in delivering their services to their clients, and reveals the extent of the unseen cost of poor service across our sector. And, of course, the only person that is paying for that, is the client

“Critically, one in three advisers confirmed they had stopped using a platform provider because of poor service, showing that advisers are not afraid to vote with their feet and take business away from the platforms which don’t deliver.

“Parmenion is urging fellow platform providers to be more transparent about their service experience to support adviser and consumer expectations, and in turn, drive up standard.”

The Lang Cat’s insight director Steve Nelson, added: “Gone are the days when provider service used to just mean who could answer the telephone the quickest. Our research proves that service means different thing to different firms and different roles in the profession.

“People, processes, and technology all combine to give a unique view on what an individual needs and expects from the services they use. Ultimately, advice firms use platforms to help make them as efficient as possible.

“That’s the theory anyway. It’s no surprise to see service becoming an increasingly important selection factor in the research and due diligence process when you look at some of the impacts that a poor service experience, whatever that may mean to the individual, can have on a firm.”

Total outflows from advised platforms this year-to-date sits at £38.1bn, a 30% increase compared to the same period last year.

Record high outflows combined with record low net sales of £1.7bn has resulted in hardly any asset growth for advised platforms, according to the lang cat.

To read more on this topic, visit: Quilter increases withdrawal amount on platform as part of upgrades

The data showed that assets increased by just 0.06% from Q2 ending the quarter at £545.96bn.

Quilter maintained its lead with £69.65bn of assets under administration (AuA) followed by Abrdn with £68.46bn.

Rich Mayor, senior analyst at the lang cat, said: “Advisers are telling us there are two main drivers; clients are withdrawing more to cash savings and also to cope with the cost of living. The responses from advisers are consistent with the conversations we’re having with platforms too.

“Retirement plans and sums needed are likely to have increased due to inflation, cash interest rates are the highest they’ve been for years, as are annuity rates. All of this combines to create a perfect storm for advised platforms.”

Mayor believes that we have just about reached the peak of this activity.

He added: “The fourth quarter is likely to be similar to this one, but with interest rates steady, cash and annuities rates have likely hit a high point. It’s likely that 2024 will be the start of things turning back to something like normal for platforms. But the journey will be slow and recovery fragile.”

Currently, only 3% of companies are still in noncompliance and need to make required changes and only 21% reported that the transition was difficult and required “a lot of work” to comply.

About two-thirds of respondents have found Consumer Duty changes to be a worthwhile adjustment however when asked if adviser firms had mentioned Consumer Duty updates to clients, only 20% had sent out a notice.

Another 41% discussed changes when prompted by clients but the remaining 39% had not announced the changes.

To read more on this topic, visit: St James’s Place to overhaul charging structures amid ‘robust’ quarterly results

Jamie Jenkins, director of policy at Royal London, said “The Consumer Duty has prompted a great deal of activity from all areas of the financial services industry and, while this may have initially seemed onerous, it’s clear that it is making a difference to how firms operate in the interests of clients and customers.

“Financial advisers are closer to their clients than anyone else in the value chain, so they are very well placed to understand the changes needed to deliver good outcomes.”

Mike Barrett, consulting director at the lang cat, added: “If you believed the noise, you might conclude that advisers believe Consumer Duty is a waste of time. Reassuringly, our research shows a more positive sentiment, which, I think, reflects the advice sector’s transformation from an industry into a profession.

“Yes, there has been work to do to facilitate this transformation, however the intentions for Consumer Duty are hard to argue against. If the regulator can evidence proactive supervision, driving change and taking enforcement action where necessary, as well as helping advice firms understand best practice, we believe this positive sentiment can improve further.”