Turbulent economic conditions and the Consumer Duty challenges have hit confidence in the future of the advice profession with 16% - one in six - of firm owners looking to sell or exit the market in the next 18 months.

According to NextWealth’s Financial Advice Business Benchmarks 2023 report, produced in association with the CISI and PIMFA, some 48% of firms have been approached by a potential acquirer.

Heather Hopkins, managing director at NextWealth, said: “With tough economic conditions and increasing regulation it’s easy to see why selling up and perhaps even shipping out is proving tempting for increasing numbers.”

The report showed that the last two years have taken its toll on recruitment.

Only a third of firms plan to add staff in the next 12 months compared to 59% two years ago, while the proportion of roles offered to Paraplanners has fallen from 38% in 2021 to 14% in 2023, after falling to 19% in 2022. There's been a similar fall in the recruitment of support staff. 

Heather Hopkins said: “Is the drop in appetite for recruitment of Paraplanners and support staff a sign that tech and AI is having an impact or simply down to advice firms treading water until the economic environment improves and confidence returns. Time will tell.”

When it comes to clients, 29% of firms are working with more clients than last year, but the figure is down from 46% in 2022. Some 17% of firms have fewer clients than a year earlier, up from 5% in 2022.

The cost of advice is falling however, according to the report.

The total all-in costs for clients fell from 1.98% of assets to 1.75% in the past year, after remaining at around 2% for many years.

When it came to considering Consumer Duty, half of the survey respondents thought it would have no impact on their business. Among those that expected an impact, the most common responses centred on three themes: operational impacts on the firm (19%); more time required to produce compliant documentation, (16%) and changes to the fee structure (14%).

Meanwhile 13% were concerned the new Duty rules will have a negative impact on their business.

Sally Plant, CISI assistant director, Financial Planning and education development, said: “This important report lifts the lid on the overall health of the adviser market, providing some stark findings regarding the environment for support staff, selling up, attitudes towards Consumer Duty, AI and the fact that the cost of advice is falling.”

Liz Field, PIMFA chief executive, said: “The previous 12 months has seen a significant upheaval in the market and we had been concerned that firms had been forced to put some plans on hold in order to grapple with the weight of regulatory change. The report shows that this is an industry which continues to move forward – albeit in the face of some challenging conditions – build for the future and show tremendous resilience.

“As we move forward and more focus is put on the value that advice provides and the broader value advice firms provide for their clients, this report shows that firms are extremely well positioned for the future.”

• The results in the Financial Advice Business Benchmarks 2023 Report were based on a survey of 244 financial advice professionals conducted between 11 July and 21 August.