The cost and complexity of new financial regulations, such as the Consumer Duty, are pushing financial advisers to increase minimum client portfolio size to maintain profitability.

A new study has found that many advisers are increasingly moving upmarket as the compliance burden grows.

Many are also capitalising on changes such as the LTA scrapping to build higher average portfolio sizes.

Just over half of advisers have increased their average minimum portfolio size to £117,000 in the past year, up 17% from the £100,000 figure seen a year ago.

The annual Scottish Widows Investor Confidence Barometer found that regulatory changes were, “forcing advisers to seek larger clients.”

Among the key changes highlighted in the survey:

• 51% of advisers increased their minimum portfolio size in the past year, with the average minimum portfolio now £117,000

• For firms with over £500m invested, their average minimum portfolio size is up to £134,000

• A year ago the average minimum portfolio size stood at just over £100,000

Since the removal of the Lifetime Allowance (LTA), 79% of surveyed advisers reported that ongoing tax and regulatory changes were affecting their business operations.

In response to rising compliance costs, advisers are pivoting towards clients with larger portfolios, the survey found.

Adviser sentiment on changes to regulation was “mixed” with around half (48%) of surveyed advisers believing that regulatory and tax changes have positively affected their ability to add value for clients, specifically citing changes to Consumer Duty and LTA.

Some 81% of advisers reported a negative impact from regulatory and tax changes on their workloads, with 68% reporting a negative impact on the cost of doing business.

The introduction of the Sustainability Disclosure Requirements (SDR) has sparked mixed responses with 43% of advisers finding the new sustainability labels helpful, while 30% do not.

Advisers are also facing generational challenges, like the great wealth transfer and a “stubborn advice gap.” Many said technology could play a pivotal role in meeting these challenges by increasing the supply of financial advice. Nearly two-thirds (61%) of surveyed advisers agreed that improvements in technology would enable them to look after more clients in five years.

Some 74% of surveyed advice firms were either already using AI tools or were interested in doing so.

Despite these advancements, both advisers and clients agree that a human touch remains essential in the advice process. Three quarters (76%) of surveyed advisers believe that digital-only models could weaken the value of financial advice.

Ross Easton, Scottish Widows, head of platform proposition, said: “While regulatory change has brought with it added complexity and increased workloads, advisers have proved themselves to be flexible and adaptable. Significant shifts, such as the removal of the Lifetime Allowance, also gave advisers an opportunity to showcase to clients the value of advice.”

• The Scottish Widows Investor Confidence Barometer is a twice-yearly survey of over 1200 people conducted by Censuswide and Research in Finance for Scottish Widows Platform. The latest survey was carried out in September of 501 advised consumers with a minimum of £100k iin nvestible assets; 500 non-advised consumers with a minimum of £100k investible assets and 200 (18+) financial advisers.