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Commissions, charges and crises: How the advice market fared in 2016

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The advice market has been in a state of flux in 2016. Pension freedoms turned a year old, the FCA got a new chief executive, robo-advice continued its onward march, and another wide-ranging review of the advice market was set in motion.

As we prepare to launch into 2017, its time to take stock of the main trends for advisers over the last twelve months with the help of some number-crunching.

Revenues up, commission down

Advice sector revenues are on an upward path according to the FCA. Crunching the numbers this October, the regulator found that revenues in 2015 passed the £3bn mark, up from £2.6 and £2.8bn in the previous two years.

Also note the predictable but nonetheless speedy decline in how much advisers are making in commission payments, both in absolute terms and as a percentage of total income. (Some rounding has been done for ease of reading in the below chart.)

Adviser charging examined

The FCA’s October data bulletin, drawn from a sweep of returns on its Gabriel reporting system, also had some good detail on adviser charging.

Most advisers still charge on a percentage of investment value basis, the data shows, but structures incorporating fixed fees or hourly charges now form a significant part of the market.

For percentage charging, the FCA found average charges for initial advice are 1 per cent minimum and 3 per cent maximum. For ongoing charges, the average rates are 0.5 per cent minimum and 1 per cent maximum.

For firms charging an hourly fee, national average minimum and maximum rates vary between £150 and £195 per hour.

Annuity rates and gilt yields

Advisers looking to recommend annuities will have had a tougher time convincing clients in 2016. Not just because the freedoms are beginning to bed in, but because rates continued to slide throughout the year (despite picking up slightly towards the end.) This trend was mirrored in gilt yields. Retirement IQ director William Burrows has been collecting the data every month of 2016:

Burrows says: “The reason why annuity rates have fallen is simple. Annuities are priced in relation to the yield on fixed interest investments and these yields have plummeted, especially after the Brexit vote in the summer.”

Pensions and platforms

Pensions overall had a good year though. 52 per cent of adviser platform assets were invested in a pension wrapper and 82 per cent of net sales went to a pension wrapper in the third quarter of 2016, according to data from consultancy Platforum.

Platforum research director Heather Hopkins says: “We saw a rapid and immediate rise in sales to pension wrappers when the pension freedoms were introduced and the shift toward pensions continues.”

Platforms cashed in on this trend too. UK adviser platform assets passed the £400bn mark for the first time in Q3, reaching £405.18bn, an increase of 23 per cent year on year.

Network numbers knocked down

2016 wasn’t such a great year for network membership, however, according to data compiled by support service provider Threesixty. Only six of the top 30 largest firms by number of CF30 qualified investment advisers added double digit growth in CF30 numbers in the first 9 months of 2016.

Here’s how the top 10 broke down:

Threesixty services managing director Phil Young says: “Overall there is no real increase in CF30 numbers across the top 30 firms, and whilst they are throwing money at recruitment and acquisition, as many are leaving or retiring as joining. Many of these big groups have become retirement strategies for advisers looking for an exit rather than firms anyone would join because they are great advice firms to work for.”

War on independence?

An internal EY analysis obtained by Money Marketing in April made a major prediction for the year ahead: restricted advice firms will steal significant market share from independents.

At least half of the market will be restricted by 2020/21, EY estimates. Among smaller firms there will be 300 to 400 consolidations a year for the next five years. Among larger firms where most M&A activity is concentrated, EY predicts 75 per cent will be acquired over the same period.

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So good luck for 2017 advisers, independent or otherwise!

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Comments

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

  1. Typical of the FCA to have picked out the easy data from the GABRIEL returns as the basis for raising challenges against the adviser community whilst, as Andrew Tyrie has pointed out, the FCA itself can hardly claim to being a paragon of value for money.

    Noticeable by its dispiriting absence is any comment on how many firms are transacting business which it considers warrant closer scrutiny. On this basis, may we reasonably infer that the FCA has no plans for any measures likely to put the brakes on the ever-increasing wave of uninsured liabilities being taken on by the FSCS and thus the size of our levies?

  2. The continued drop in commission also indicates the predicted advice gap for protection continues to widen, disadvantaging the “just about managing” in society, so not a great example of policy makers’ market interference allegedly to protect consumers. Seemingly they’ve mostly protected those wealthy enough to be comfortable paying nearly £200per hour for advice to make them wealthier. Such as those like themselves maybe.
    With other reports finally indicating protection sales rising this year from their lengthy slump, I assume non-advised routes to market are gaining traction. Whether the right protection is being taken out this way remains to be seen.

  3. And then there’s the multiple failings of policy which mean may people will not get the insurance they need against outliving their capital. Or if they do, the rate they get for that annuity will beat an all time low. Not entirely, but substantially policymakers’ fault again, I would argue. On the bright side though, the NHS is being strangled, death rates look to be trending up again and this hasn’t been priced into better annuity rates yet(!)

  4. In addition to adviser charging, the FCA din’t seem to understand the significant additional costs of staff members.

  5. Sorry 3% Maximum – i can name many firms chaging more than that come on.
    Worrying stats are commissions falling – that means protection advice is falling !

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