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Apfa: Adviser profits up 5% as market stabilises

Advice firms saw an increase in pre-tax profits of 5 per cent last year as the market began to stabilise, according to Apfa’s latest state of the market report.

The annual report shows that pre-tax profit for all firms with an FCA primary category ‘financial adviser’ was £931m last year, up from £884m in 2013.

However, Apfa says the figures are shown before dividends, and may not therefore reflect the full costs of running advice firms.

The average pre-tax profit for directly authorised advice firms was £178,557 in 2014, 2 per cent higher than in 2013. But the average pre-tax profit per individual adviser fell by 1 per cent to £39,382.

Advisers’ revenue also increased last year.

The report shows the average annual revenue earned by directly authorised financial advice firms for all regulated business in 2014 was £755,597. This is up by 9 per cent from £691,304 in 2013.

The average revenue per financial adviser increased by 6 per cent from £157,046 in 2013 to £166,654 last year. The report shows that as at December 2014, there were 14,550 financial advice firms registered with the FCA, up by 1 per cent from 14,387 in December 2013.

The number of advising staff working in financial advice firms has increased by 7 per cent, from 22,168 in 2013 to 23,640 in 2014.

In addition, the report shows that in 2014, 20 per cent of advisers’ income came from pre-RDR investment business and a further 14 per cent from commission on non-investment business. Some 30 per cent came from ongoing fees, and another 30 per cent from initial fees.

During the previous year, 29 per cent of income came from pre-RDR investment business, plus 15 per cent from commission on non-investment business. Some 23 per cent came from ongoing fees and 27 per cent from initial fees.

The report also reveals that last year, 77 per cent of advisers’ income came from independent advice, and 20 per cent from restricted advice. Another 2 per cent was from focused advice and 1 per cent from direct offer business.

In 2013, 87 per cent of income came from independent advice, with just 9 per cent coming from restricted advice and 4 per cent from focused advice.

Apfa director general Chris Hannant says: “Two years after the RDR was implemented it seems that the adviser market started to stabilise in 2014.

“2014 saw an increase in the number of advisers by over 7 per cent and, despite the volume of high profile mergers and acquisitions, there was a small rise in the number of advice firms.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. So what? Is this data of any meaningful value to the adviser community? Isn’t APFA’s primary mission objective supposed to be to fight our corner with the FCA, the FOS and the FSCS? Or has all that just been lost in the woods?

  2. I echo Julian on this “so what” !

    I do not doubt Chris Hannant’s commitment or any other member of APFA’s team, but this is hardly a good news story and states the booming obvious if you ask me !

    Adviser numbers are down 30 odd % from 3/4 years ago so, one would presume profits would be up 30% for those that are left ? also (and a more important point) the regulator should have 30% less work to do, so our fees and costs should reflect that !!

    “Regulatory dividend” pfft !! we as an industry keep falling for the same old bull !

  3. OK so here’s some “so what”.

    Not so much from the article (not by Apfa). But a look at the actual Apfa report is actually quite instructive. To my mind it supplies yet more ammunition for quantifying the consumer detriment being suffered by regulatory intervention and costs. Especially for those who should be getting life/CI/income protection in place. But no less for those now exposed to the new pensions and investment scams. Er, I mean freedoms.
    e.g.
    1. Advisers per firm 7% up (from exam passers and LBG exits I guess), but clients per firm static and pre-tax profits per firm up only 2%. (So clients per adviser down 6.5%, regulatory fees up, means more exclusion from advice, and remaining clients having to pay more towards keeping the business afloat.)
    2. The proportion of non-advised product sales has rocketed again in 2014. It’s completely switched from accounting for a steady third of product sales in pre RDR years. 2013 it was half. 2014 it was two-thirds.
    3. The market measured by income, has massively shifted in 2014 to 23% restricted/focused advice or direct offer, up from 13% in 2013.
    4. By volume, protection accounted for only 2% of adviser product sales compared to 13% in 2013. Down by about 6/7ths!
    5. Meanwhile the DIY investment market is thundering ahead, making the Aim market a private investor fleecing paradise to cream off all those juicy ISA and SIPP “investments” with a nice steady stream of shell companies “about to release news”.

    I believe this is a reflection of the impact of the RDR on ensuring households are protected against the loss of earnings of a bread-winner (which are needed to keep funding all those savings and pension pots). Ironic, set against the (ineffective) Treasury sponsored Simple Products review in 2011/12, concerned at the 19.8m households identified that could benefit from having protection. Add in MMR, and it’s not hard to understand the numbers betrayed by the FCA product sale stats.:
    1. Protection sales (CI+IP) have continued to drift down, being a third lower at last figs (Mar 2014) than 2006 when FSA/FCA figs began.
    2. The protection sales drop isn’t just related to the mortgage market implosion. Or PPI. New mortgages were up 13% over the 12ms ending March 2014 vs the 12 months ending March 2011. By value, net residential mortgage lending was up 66% over that time. But protection products still fell 11%.

    Just need someone to work out a per advised client and per product regulatory cost now, to make the picture complete. Any takers?

  4. Interesting commentary Ruth. Simple products never took flight because, as far as most life insurance products are concerned, there’s precious little to strip out without turning them into empty matchboxes. Big deal.

    And the FCA will NEVER agree on an any simplified advice proposition, even though it could be as simple as Proposition, Costs, Risks and Tax. That’s all that most clients want and need.

    So the bucket shops are cleaning up, as much as anything else because what they offer is a simple and streamlined proposition without hours of meetings and discussions and form filling and assessments of ATR and CFL plus a fee for a gigantic report and all sorts of meaningless illustrations that they really can’t be bothered to read. Tragically, the FCA just cannot or simply will not see this. Consumers must be engaged. Consumers must be steered towards the most appropriate strategies possible. Consumers must understand what they’re buying. Consumers must be protected. Consumers must know that the FCA, the FSCS and the FOS are all here to protect them (which sadly the FCA demonstrably all to often doesn’t). It’s all absolutely bloody absurd really, but we struggle on anyway.

  5. Thanks Julian. I completely agree it’s not the products but everything surrounding them that needs to be simpler:
    • no gigantic report and roll of compliance toilet paper,
    • no underwriting to the nth degree needing reams of pages of data capture
    • no pretending “own occupation” (always) pays if you’re too ill to work, which is what “own job” cover would do
    • no need to go into the ins and outs of the theoretical potential for IHT, relevant only to a minority of those actually needing pure protection
    • no need to worry about (or just ignore) the palaver that is trusts and being referred to “your legal adviser”
    • no need for bereaved families to have to wait around for probate to get any death benefit
    • and yes, plainer English and shorter policies would be nice, but that’s not been achieved by the kitemark criteria, going by the first accredited policy

    Apart from that, not much could have been done.

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