Five big issues facing advisers in 2022

The financial advice industry had a lot to contend with in 2021 – not least, the ongoing disruption of Covid-19 on the economy, clients’ financial plans, and advisers’ own businesses.

As we settle into a new year, thoughts now turn to what the next 12 months could have in store. From inflation and sustainable investing to regulation and tax, we’ve summed up some of the issues facing advisers in 2022.

1. Rising inflation

Finding ways to help clients beat the erosive effects of inflation is likely to become an even more pressing priority for advisers this year. Latest figures show the UK consumer price index rose by 5.4% year-on-year in December¹ – the fastest rate in 30 years and well above the Bank of England’s 2% target.

With interest rates on cash savings accounts stubbornly low, many clients could be feeling anxious about the impact of rising prices on their long-term plans. Advisers are perfectly placed to guide clients through their options, and find investment solutions that will give their clients’ money the opportunity to grow in real terms.

2. Sustainable investing rules

The past year has seen greater focus on climate change and the role of the finance sector in supporting the transition to a net zero economy. The United Nations Climate Change Conference (COP 26) has further encouraged investors to consider wider environmental, social and governance issues (ESG) as part of their investment decisions.

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.

In a discussion paper published in November 2021, the FCA said it would be “appropriate to confirm that advisers should consider sustainability matters in their investment advice and ensure their advice is suitable and reflects consumer sustainability-related needs and preferences”². To meet this requirement and avoid the risk of greenwashing, advisers may need to invest more time in researching what investments marketed as ESG really do. Alternatively, they could partner with a discretionary fund manager (DFM) who offers support in this field.

At Brewin Dolphin, ESG integration is a central part of the responsible investment approach that we deploy for all investors. We actively engage with funds so that we can dig deep into how they consider ESG factors for specific companies and sectors and, if necessary, challenge them on controversial holdings. We also have a separate socially responsible investing (SRI) list for funds which aim to deliver attractive investment returns while contributing positively to global environmental and social challenges

3. New consumer duty

The FCA is also due to publish final rules on a new consumer duty by the end of July 2022, which aims to introduce a fairer, more consumer-focused and level playing field in retail financial markets.

The FCA’s latest consultation paper, released in December, contains specific duties for financial advisers. These include considering both their target market and individual customers when designing their service; whether the overall cost to the customer, including all product and distribution charges, provides fair value; and whether the customer is givensufficient information about the overall proposition in a timely and understandable format. The adviser must also consider if their advice charges provide fair value³.

4. More clients falling into tax traps

The next year could see more clients falling into tax traps. In the March 2021 budget, chancellor Rishi Sunak announced that the personal tax allowance and higher-rate tax threshold would be frozen for five years. By freezing these thresholds, more clients could drift into higher and additional-rate income tax bands, and potentially see their personal allowance tapered once adjusted net income exceeds £100,000.

The chancellor also announced that the pension lifetime allowance would be frozen at £1,073,100 until 2026. Pension contributions, tax relief and investment growth over several decades could mean those with seemingly modest pension portfolios could be at risk of exceeding the threshold.

Finally, the inheritance tax (IHT) nil-rate band and residence nil-rate band were also frozen until 2026. Together with soaring house prices, this could result in many more families paying IHT on inherited assets.

Advisers have a crucial role to play in ensuring clients’ assets are structured in the most tax-efficient way, and that they are taking full advantage of all the reliefs and allowances on offer.

5. Covid-19 uncertainty

Although the worst of Covid-19 appears to be behind us, clients could have seen their personal and financial circumstances change as a result of the pandemic. Some may have been forced to reassess their goals and aspirations, while others could simply be looking for reassurance that their plans are still achievable. The emergence of new variants has the potential to cause further volatility in financial markets, which could add to the sense of uncertainty.

Whatever their goals and circumstances are, clients will be looking to their financial adviser for ongoing support and guidance in the months ahead. If you’re also responsible for managing investments, devoting additional time to your clients might not always be possible. By partnering with a DFM like Brewin Dolphin, you can give your clients the attention they need, while we focus on managing investments, keeping a watchful eye on market movements and, where appropriate, making portfolio adjustments quickly and decisively.

How we can help

While no-one can predict exactly how 2022 will unfold, what’s clear is 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 www.brewin.co.uk/intermediaries

^{1 https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/december2021
2 https://www.fca.org.uk/publication/discussion/dp21-4.pdf
3 https://www.fca.org.uk/publication/consultation/cp21-36.pdf}

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The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. We will only be bound by specific investment restrictions which have been requested by you and agreed by us. Opinions expressed in this publication are not necessarily the views held throughout Brewin Dolphin Ltd. Information is provided only as an example and is not a recommendation to pursue a particular strategy.