The Prospects for UK Wealth Managers and IFAs: Good, bad, or ugly in 2023?

2023 promises to be a turbulent year in wealth management, with the fallout of 2022 showing signs of continuing into the new year. With this in mind, we’ve undertaken a review of the current situation in the market with a view to understanding what 2023 may bring for wealth managers and independent financial advisors. 

The economic outlook continues to be dominated by high inflation, rising interest rates, the war in Ukraine, Covid-19 supply chain issues and more. Ultimately, it’s expected that the global economy will enter into recession during 2023 before returning to growth in 2024. 

Such an uncertain outlook represents both a challenge and an opportunity for wealth managers and independent financial advisors. In this article, we will explore the prospects for 2023 and what this means for you. Read on to find out more.

2023 UK Wealth Management Forecast

Wealth managers and financial advisors who are still reeling from 2022 and expecting an easier 2023 may have their hopes dashed. The UK’s Office for Budget Responsibility (OBR) paints a bleak picture with a projected contraction of 1.4% GDP in 2023. This comes off the back of a 0.4% contraction between Q4 2019 and Q3 2022. For context, the OECD has indicated that the only country to witness a bigger contraction within the G20 would be Russia. 

The Bank of England has warned that the UK is looking at its longest recession since records began and expects it to run well into 2024. EY Consultancy indicated that 86 London-listed firms have issued profit warnings which is more than in any third quarter since 2008. 

Finally, Credit Suisse has echoed the Bank of England’s sentiments saying: 

“We now expect the eurozone and the UK to have entered a recession in Q4 2022 and China to be in a growth recession. These economies should bottom out by mid-2023 and begin a weak, tentative recovery – a scenario that rests on the crucial assumption that the United States manages to avoid a recession.”

While many wealth managers predict a challenging year ahead, there is also optimism that Q3 and 4 of 2023 could be the turning point which leads to a more positive 2024. It’s vital they put themselves in a position to capitalise.

The Impacts of 2023 on Wealth Management

It’s clear that with an uncertain 2023 horizon, wealth management organisations and independent financial advisors will feel the effects. As clients seek additional services and consultancy to weather the storm, wealth managers may be required to adapt and adopt a wide range of strategies to capitalise on opportunities and manage risk.

The president of UBS Global Wealth Management, Iqbal Khan, argues that wealth management professionals may find that clients look increasingly towards safe investments and defensive sectors:

“At a time when calamitous events are in the headlines on an all-too-regular basis, investors will enter 2023 with many questions about the strength and purpose of the political and financial institutions that support global markets,” 

It seems that defensive sectors like consumer staples and healthcare can be well insulated during periods of lower economic growth. On the other hand, value stocks can perform well in environments of high inflation. As an additional element of optimism, UBS GWM said, “more attractive opportunities to buy cyclicals and growth stocks may emerge later in the year as markets start to anticipate lower inflation and stronger economic growth.”

However, we still see traditional and reliable wealth management strategies and tactics as avenues for growth and success. There are a variety of opportunities that exist, providing that clients engage with the right firms and IFAs who are both forward-thinking and adaptable in a turbulent marketplace. We believe a holistic approach is required that balances growth, portfolio management and risk.

With that in mind, wealth managers and independent financial advisors can also expect to deliver higher levels of risk management for clients throughout 2023. Those with strong processes, premium risk reporting and a wide suite of analytics are likely to be in the highest demand as the year progresses. 

The Hybrid Digital Transformation

Wealth management professionals can expect clients and investors to value the digital experience. Demographics are changing, and a new, younger generation of investors is entering the market. While digital technologies are unlikely to ever replicate or replace the value that human relationships can provide, wealth managers and IFAs will have to adapt. 

Integrating new technologies to improve client experience, increase operational efficiency or deliver personalised and intelligent financial advice at scale is likely to become increasingly important in attracting and retaining clients. Devising and implementing a hybrid advisory service could be key to success in 2023 and beyond.

Alternative Investments

Wealth managers may also find themselves having to continually adapt to the volatile and uncertain market. In the mid-to-long-term future, investment opportunities may change as conditions improve. Improved opportunities will lead to less reliance on higher-risk investments. 

In the previous few years, alternative investments such as property, private equity, and hedge funds have increased in popularity. As ‘traditional’ investments could continue to struggle in early 2023, these alternative investments may continue to grow. Investors looking for new options to diversify their portfolio to manage risk generate higher returns, or both will be looking to their wealth managers or IFAs to understand these new opportunities, such as within ESG. Those that are well-placed to provide this guidance are likely to navigate 2023 in the best shape.

The Signs of Recovery

Clearly, 2023 promises to be a turbulent, challenging and unpredictable year in wealth management. Although external factors like the war in Ukraine and increasing inflation are likely to subside, the global economy is still poised to enter into a recession. However, we expect to see the green shoots of recovery in Q3 and Q4. 

Despite this, the opportunities for wealth managers and independent financial advisors are there to be exploited, should they be in a place to capitalise on them. This means offering a market-leading service to clients that encompasses risk management, embracing new technology, and providing reliable yet forward-thinking strategies.