Financial advice is going through a revolution as new technology, new opportunities and new challenges shape the future of the industry.

Technology is certainly playing a bigger part in the advice process than ever before. Added to this are three key themes which converge as we consider what this might all mean for UK adviser businesses in the years ahead.

The importance of longevity, inter-generational planning and the enduring low-yield environment have been growing in significance for some time and were all reinforced in 2021. 

In terms of longevity, the reality is that people are now living longer, and that brings with it associated issues in terms of planning for the future and ensuring that clients have a suitable amount of money to live on as they get older.

As such, inter-generational planning has become more important now in the current low-yield environment than it ever was before.  Despite modest increases during 2021, government bond yields remain below pre-Covid levels. In this environment, we know that clients could benefit from starting to think about investing for their futures earlier, maybe in their twenties and thirties.

Prior to the pandemic, interest rates and bond yields were already at an all-time low, and while our economic outlook forecasts modestly higher inflation and a normalisation in interest rates in 2022, it is not enough to raise our return forecasts to historical averages. We judge that any further move by the Bank of England to raise interest rates is likely to be gradual, given the ongoing fragility of the post-pandemic economy.

A continuing low interest-rate environment is one of the factors contributing to Vanguard’s view that stock and bond market returns will be relatively subdued over the next decade. Returns are unlikely to keep pace with those of the first decade or so of this millennium.

A need for good quality professional advice

Against this uncertain backdrop, the growing need for financial planning continues to be influenced by factors such as the shift from defined benefit pensions (DB) to defined contribution (DC) schemes. This adds a layer of complexity to the financial planning process that simply didn’t exist a generation ago.

As such, there is a need for good quality professional advice and the potential for growth in this area is immense. Currently only around 7% of the UK population has paid for financial advice in the last two years1, which underlines the ‘advice gap’. However, for those who paid for advice, over 90% found it helpful.

Tailoring advice for different client segments

There is a real opportunity in 2022 for financial advisers to begin to close the advice gap and to provide more thoughtful and deliberate financial advice. Furthermore, changing demographics mean that as millennials come of age (born 1980-2000) and seek financial advice, the challenges they face are already vastly different from those of their parents or grandparents.

As we look ahead, we think a significant part of the advice spectrum will continue to be person-to-person interaction, which is largely the domain of UK financial advisers.

On this basis, we believe that our four investment principles will remain central to the delivery of advice. The importance of goals, balance, cost and discipline are key to every client conversation. In our view, the articulation of goals, and aligning a client’s goals with an investment portfolio, lie at the heart of delivering value to investors.

To this extent, we believe that a balanced, multi-asset portfolio of stocks and bonds, including the classic 60/40 model, will retain its position at the core of investor portfolios. While the outlook for different asset classes will change in response to evolving assessments of economic and market conditions, the 60/40 model can ensure client portfolios are well diversified across asset classes, regions and sectors, in-line with their risk tolerances.

Investors who want to take more risk in pursuit of higher returns can adjust the ratio of equities to bonds in their portfolio accordingly. In a low-return environment, the 60/40 model can give investors fair odds of achieving their goals in the most efficient way.

The articulation of ESG preferences alongside investment goals

Since multi-asset solutions free up advisers from the time-consuming task of selecting and maintaining funds in a portfolio, advisers can benefit from time back to focus on what really matters - talking to clients, understanding their needs, wants and outcomes, and providing quality advice.

Meanwhile, clients are also expressing a growing need for products that allow them to invest with both financial goals, as well as personal values, in mind. A key driver for client demand is increased public and regulatory attention on ESG issues such as climate change.

We recognise, though, that sustainable investing2 and the management of ESG risks and opportunities can mean different things to different people. There is no one-size-fits-all approach, which means it can be another opportunity to show the value of good-quality advice.

At Vanguard, we think about ESG risks and opportunities in the context of delivering long-term value to investors and helping them to meet their objectives. We incorporate ESG considerations into our product design and investment processes in a number of ways:

Engage - As long-term owners of the companies in which our funds invest, we engage with companies on material ESG issues as we believe they can impact long-term value creation at those companies.

Allocate - Many of our active funds aim to allocate capital to companies based on how they manage ESG considerations, alongside other factors, when selecting investments.

Avoid - We develop products that allow investors to avoid exposure to companies that are not aligned with their values, or to mitigate certain ESG risks.

Advisers, too, can think about ESG in the context of understanding their clients’ needs, investment preferences and their objectives, and translating that into the most appropriate investment portfolio.

As we go into 2022, and clients articulate their ESG preferences alongside their investment goals, we anticipate a much bigger focus on the planning element of the advice process. The evolution of advice means that we are likely to see advisers work more closely with clients to determine life goals and co-create financial plans. This is all part of an enhanced, tailored service which should remain a core part of the advice journey for some time to come.


1 Source: The UK Advice Gap 2021, OpenMoney.

2 Investment approaches that select and include investments on the basis of their fulfilling certain sustainability criteria and/or delivering on specific and measurable sustainability outcome(s). Investments are chosen on the basis of their economic activities (what they produce/what services they deliver) and on their business conduct (how they deliver their products and services). Source: The Investment Association. The Responsible Investment Framework, 18 November 2019.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Important information

This document is directed at professional investors and should not be distributed to, or relied upon by retail investors.

This document is designed for use by, and is directed only at persons resident in the UK. The information contained in this document is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information in this document does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this document when making any investment decisions.

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