Five big issues facing advisers in 2023

Financial advisers had to step up to the plate in 2022 as the war in Ukraine, soaring inflation and interest rate hikes saw clients reassessing their long-term plans.

2023 is already shaping up to be another eventful year, with economic and political uncertainty continuing, and new regulations just around the corner. Here, we’ve summed up some of the biggest issues facing advisers in 2023.

1. High inflation

Helping clients mitigate against the erosive effects of inflation will continue to be a priority for advisers this year. Latest figures show that while UK inflation continued to ease in January, it remained in double-digit territory at 10.1% year-on-year¹. Inflation may have peaked, but it continues to exert considerable pressure on people’s ability to save for the future and grow their money in real terms.

Advisers are perfectly placed to guide clients through their options, and find investment solutions that will give their clients’ money the opportunity to grow over the long term.

2. Sustainable investing

The past year has seen an even greater focus on climate change and the role of the finance sector in supporting the transition to a net zero economy.

As demand and awareness rise, ESG matters are moving up the regulatory agenda. The Financial Conduct Authority (FCA) is not only focusing on embedding clear and consistent ESG definitions among product providers, but has also suggested introducing specific sustainability rules in the advice process.

The FCA launched a consultation paper in October on how it plans to crack down on greenwashing². It is proposing to introduce sustainable investment product labels that will give consumers the confidence to choose the right products for them, and restrictions on how certain sustainability-related terms, such as ESG, green or sustainable, can be used. Distributors of products will be required to ensure labels and consumer-facing disclosures are accessible and clear to consumers. The final rules are due to be published by the end of the first half of 2023, and could affect all companies from discretionary fund managers (DFMs) and providers to platforms and financial advisers.

3. New consumer duty

The new Consumer Duty, due to be implemented in July 2023, is expected to lead to increased regulatory scrutiny of advisers’ investment propositions and advice processes.

One of the Consumer Duty’s four customer outcomes is that products and services are fit for purpose. In other words, they must be designed to meet the relevant customers’ needs and targeted at those customers. This requirement builds on the PROD rules around ensuring products meet the needs of specific target markets.

Firms will need to provide additional evidence showing how their centralised investment proposition (CIP) or centralised retirement proposition (CRP) segments clients to meet their different needs and objectives. One way to reduce the burden of managing a CIP or a CRP is to outsource the responsibility for creating and managing investment portfolios to a DFM. DFMs have discretionary permissions, so they can adjust portfolios as and when required without needing to seek authorisation from each client. They can react swiftly during times of market turmoil, and ensure portfolios retain the correct balance between risk and reward.

4. More clients falling into tax traps

The next 12 months could see more clients falling into tax traps. Despite high inflation, the personal income tax allowance and higher-rate tax threshold remain frozen until 2026, while the additional-rate tax threshold is being lowered from £150,000 to £125,140 from April 2023. These measures will see more people paying the 45% top rate of income tax and more people drifting into higher tax bands because of inflation.

Meanwhile, the capital gains tax (CGT) exemption and dividend allowance are being slashed to £6,000 and £1,000, respectively, in April. Whereas CGT and dividend tax were previously seen as issues only affecting the very wealthy, cuts to these allowances could see many more clients breaching their tax-free allowances and facing hefty tax charges as a result.

One way of managing CGT and dividend tax is to invest clients’ money in a discretionary portfolio. Discretionary portfolios are made up of individual holdings and this offers a significant amount of flexibility when it comes to managing tax allowances. When an underlying holding is sold, the profit or loss immediately contributes to that tax year’s allowance, which helps to prevent gains (or losses) building up over time.

5. Economic uncertainty

2023 is likely to be another year that is marked by economic uncertainty. Falling real wages combined with high food and energy prices mean many households will feel the pinch. House prices are expected to fall as high interest rates and the cost of living impact affordability. Against this backdrop, clients will need support and reassurance that their goals are still achievable, and the role of advice will therefore prove to be as important as ever.

How we can help

While no-one can predict exactly how the rest of 2023 will unfold, it is clear that advisers are set for another busy year. Amid new regulations and increased demand for advice, we will give you time to focus on what really matters: your clients. From the responsible investment principles that are enshrined in our business, to our in-house investment research and asset allocation expertise, you can feel confident your clients are being offered the best investment opportunities, regardless of what is happening in the broader market.

To find out more about how we can work together, visit https://www.brewin.co.uk/intermediaries

<sub>1. https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/ consumerpriceinflation/january2023

2. https://www.fca.org.uk/news/press-releases/fca-proposes-new-rules-tackle-greenwashing</sub>

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Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.