AI and regulatory reform could make financial advice commercially viable for previously underserved customers. But how can firms design and price new propositions to capture growth without cannibalizing their existing business?
For years, the advice gap has been talked about as a problem to solve.
The two key developments – regulatory reform and AI – are now turning it into a commercial opportunity.
- Under CP26/10, the FCA is proposing changes that would allow firms to tailor advice more closely to customers’ needs, creating scope for a more proportionate and potentially lower-cost regulated proposition.
- At the same time, AI is changing the economics of delivering advice by lowering the cost to serve and creating advisor capacity to support more clients.
Put the two together and a previously difficult-to-serve customer segment becomes commercially attractive. However, the opportunity comes with a strategic challenge.
Firms that fail to respond risk losing existing clients to competitors offering simpler, lower-priced propositions, while missing opportunities to reach new customers. Firms that act but without clearly segmenting and fencing their propositions, risk cannibalizing their own full-service business.
A new middle is opening up
Only around 9% of UK consumers – about 4.6 million people – receive financial advice through the traditional model. At the same time, around 7 million UK adults hold £10,000 or more in cash savings and could potentially benefit from investing, while 3.8 million consumers are not receiving advice but are willing to pay for it and could benefit from it. Traditional, full-service financial advice can’t be delivered profitably to a large proportion of this population.
Historically, that has left firms with an awkward choice: offer these clients the full proposition or not serve them at all. When the economics do not work, firms pull back. We have already seen this play out. Following the introduction of Consumer Duty, 50% of advisors surveyed reported that they had stopped serving some clients, while almost two-thirds said lower-asset customers had become harder to serve profitably.
A more proportionate, lower-cost advice model could make this customer segment economically viable to serve.
Simplified advice could change that equation
The FCA's current proposals aim to make it easier for firms to offer simplified forms of individualized advice to consumers with straightforward needs.
These changes make customers who previously sat below firms' viable economic thresholds much more interesting. In the FCA's 2025 survey of more than 4,100 advice firms, nearly one-third of all respondents and three-fifths of large firms reported that they were considering offering simplified advice.
AI accelerates the opportunity
Simplified advice changes how much work firms need to do. AI can change how efficiently they do it.
Consider an advisor meeting. Instead of taking extensive notes, an advisor can record the conversation, with the transcript feeding directly into fact-finding. AI can then help draft suitability reports, while AI agents can support compliance and quality checks, processing letters of authority, and other administrative tasks.
According to an industry survey, 74% of advice professionals are now using AI, up from 43% a year earlier. Nearly half of advisors are using or implementing AI for meeting transcription and note generation, 42% for report personalization, and 40% for suitability assessment and reporting.
The impact on cost-to-serve could be significant. Serving an advice client can cost around £2,000 a year, but one AI-enabled platform is targeting a 90% reduction to around £200 through automation. This could make much lower-asset clients commercially viable.
Beyond cost savings, automation could also create something arguably just as important: advisor capacity.
71% of advisors believe AI will allow them to spend more time on client-facing work and less on repetitive tasks, while 58% expect it to help them look after more clients.
Firms could use these efficiency gains to lower the cost of advice and serve more clients.
The nature of the opportunity depends on where you start
For wealth managers, larger IFAs, and advisor networks, this creates a genuine whitespace opportunity. Clients whose assets previously fell below minimum portfolio thresholds and could not be served economically through the traditional advisor model may become commercially viable.
For banks, the opportunity lies in deepening existing client relationships. The challenge is to develop those relationships beyond banking into broader financial services. A client holding significant cash may not need comprehensive wealth management, but they may benefit from focused advice and an investment proposition that helps them decide what to do with it.
Why pay for business class when economy gets you there too?
The revenue opportunity is attractive if the new proposition brings in customers you could not previously serve. It becomes much less attractive if existing full-service clients simply trade down. That makes revenue cannibalization one of the most important strategic challenges as firms address the advice gap.
Imagine a firm launches a simpler, largely digital proposition at a materially lower price. If the difference between that proposition and its existing full-service offering is unclear, why wouldn't some existing clients choose the cheaper option? If those clients still require much of the same support behind the scenes, the firm risks reducing revenue without a corresponding reduction in its cost to serve.
This is why proposition definition and fencing becomes critical: the lighter proposition needs clear boundaries around who it is for, what needs it serves, and which products are available to customers.
Designing an effective proposition architecture
Firms should not focus solely on how cheaply they can provide advice.
They should ask: Which customers are we trying to serve, and what do they need?
Advice firms need to consider four design decisions regarding their propositions:
| Design decision | Key considerations |
|---|---|
| Who it is for |
|
| What it includes (and what it does not) |
|
| How it is delivered |
|
| How it is priced |
|
Good proposition fencing makes the difference in value, scope, and eligibility obvious.
If full advice costs several times more, firms need to clearly demonstrate what customers gain in return for that premium: the breadth and depth of planning, advisor access, support through complex decisions, coordination across a client's finances, the delivery channel, and the ability to adapt the plan as circumstances change. The higher-priced proposition has to earn its place.
The next battle is over the customer proposition
The interesting consequence of AI and regulatory reform is not simply that financial advice gets cheaper; it is that firms can serve a broader range of customers, with more than one level of support, at more than one price point.
Smaller firms could choose to stay specialized and play to their competitive advantage. However, larger firms looking to capture this growth opportunity need to move beyond a single advice proposition.
Firms need a clear ladder of regulated advice: different propositions for different levels of need, at different price points, with clear boundaries between them. They also need to make the value of the full-service proposition more obvious than ever.
The opportunity is to serve a new customer.
Do nothing, and you risk losing customers to competitors with simpler, lower-priced propositions. Get it wrong, and you risk cannibalizing your own full-service business.
The firms that win will be those that redesign proposition and pricing to capture the growth without giving away the value they already have.
Get in touch with our experts to discuss what this could mean for your business.
