View more on these topics

Danby Bloch: The advice market is going from strength to strength

New FCA report shows revenues and firm numbers are rising

The financial adviser market looks to be in rude health, judging by the FCA’s latest report on retail intermediaries. If you have not yet taken a look at the report, it is well worth doing so. It offers a great insight into what has been going on in the marketplace and how you can benchmark your firm’s performance against that of your peers.

The data is drawn from firms’ retail mediation activities returns, so the figures are authoritative, but there are some limitations and inconsistencies.

One is that the report doesn’t probe beneath the data on directly regulated firms through to the roughly 14,000 total number of firms including appointed representatives.

The document also covers mortgage brokers and insurance intermediaries, which I am ignoring here, except to say that, in terms of income per individual, advisers should feel pleased to be in the much more remunerative sector.

Total revenue from retail investment business was more than £4.4bn in 2018 – 12 per cent up on the previous stonkingly good year and over 46 per cent more than 2015.

The number of directly regulated advice firms was also up by 9 per cent on the previous year, to 5,131.

That said, the population of financial advisers is essentially static. Advice firms reported having 26,677 advisers in 2018, although the total number of financial advisers amounts to 35,663 when including those who work in banks, investment management businesses and stockbrokers, etc. That is just a tiny increase on the 2017 total and the advice gap is not getting any smaller.

The market is polarised between many small businesses and a few much larger organisations.

Nearly nine out of 10 firms have five or fewer advisers, but 45 per cent of all adviser posts are in firms with over 50 – just very slightly up on 44 per cent of all adviser posts last year.

It is perhaps surprising that adviser numbers in the big firms have increased so little, given the speed with which many of them have been hoovering up smaller businesses. But there is strong anecdotal evidence to suggest every takeover by a large organisation prompts ambitious and restless individuals to set up on their own. Interestingly, larger businesses do not seem to generate as much revenue per adviser as smaller firms.

Those with between one and five advisers brought in an average of more than £187,000 per adviser, while medium-sized firms with between six and 50 netted over £194,000 per adviser. Single-adviser firms and those with more than 50 could only manage a little over £164,000.

The figures for firms’ overall profitability are revealing, even if they should be interpreted with some caution. The most profitable firms are generally those with more than one adviser and fewer than 50, both in terms of pre-tax profits and retained profits (which might be more meaningful, especially for micro-businesses).

Profits in small businesses largely represent owners’ remuneration, unlike large firms. The average firm with between six and 50 advisers has retained profits of more than £190,000 a year. Larger businesses have average retained profits of minus £629,000; in other words, these firms are mostly cash-hungry and losing money.

The relative unprofitability of most larger firms could be explained in several ways. A few are profitable. Some are expanding fast and incurring greater-than-average expenditure, including on the purchase of good will, which depresses their taxable profits. Others have higher overheads than smaller firms; they are more visible and so have to be that much stronger in compliance and controls generally.

But for a fair few, the fact is their adviser businesses do not make much money and most of their overall group profits come from upstream platform and fund management profits. Nevertheless, big or small, 2018 was a pretty good year for advisers. And 2019 is looking fine too.

Danby Bloch is chairman of Helm Godfrey and head of editorial strategy at Platforum

Recommended

Why ISA investing continues to have great appeal

Paul Fidell, Senior Business Development Manager – Investments at Prudential, looks at why ISA investing continues to have great appeal for many investors. Although the overall subscription limit has not increased from its current level of £20,000, ISA investing continues to have great appeal for many investors.  Whether it is for a start-up contribution of […]

Asset manager to launch regional advice network

Clifton Asset Management has purchased Shewsbury-based Plan For Life Wealth Management in the first of a series of acquisitions to set up a regional network of small advice firms. The asset manager says it has “key target areas around the country” on its radar to establish “centres of excellence” that aim to disrupt the established […]

1

Alastair Irvine: Shaky ground for the euro as it turns 20

When a currency is trying to be all things to all people, it lives dangerously The euro has reached its 20th anniversary without much fanfare. Across those nations that call it their currency, there remains debate on whether it has boosted prosperity, or been a straitjacket hindering the growth of the bloc’s more fragile economies. […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com