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IFA benchmarking: How does your firm compare?

A survey of IFA firms’ readiness for the RDR shows that confidence has risen since May, but firms are being over-optimistic about exactly what is needed.

Email support@cimetric.co.uk to take part in the current survey and receive a free benchmarking report on your business.

David Lee, director, Cimetric

Three months after the first review of IFA firms’ readiness for the implementation of the RDR, the second wave of research shows firms are rising to the challenge.

Initial and ongoing advice fees have settled, although these rates seem to be independent of the firm’s cost base, which means they may change again post-RDR. Although many firms are slightly behind where they think they are, many have spoken to their clients about fees and are reporting a good success rate.

When asked how ready firms felt they were for RDR, 72 per cent said they were more than 75 per cent ready, compared with 52 per cent in May.

We tested each firm’s claim to RDR readiness by asking them which of the RDR milestones, identified by Money Marketing Academy and Taxbriefs as key to RDR compliance, they had completed. The results indicated that, almost in the same proportion as in May, respondents had over-estimated their readiness. However, most firms were less than 25 per cent behind where they thought they were.

A higher proportion of ­September’s respondents had completed each of the RDR milestones than in May. The only milestone to have a poor completion rate was the creation and application of a client profile for segmenting new and existing clients. Only 39 per cent of respondents had completed this task.

That said, the IFA firms that did know how they were going to segment their clients chose client assets and profitability as the key ­criteria.

The firms that filled out the survey were fiercely independent, although there are a few more that are looking at different models as RDR approaches.

September’s respondents indicated that a staggering 51 per cent of the firms would have revenues from ongoing advice/service fees that exceed the firm’s current annual revenues. This, combined with the reported success rate of selling the post-RDR proposition, as outlined in the graph (right, top), does put a positive sheen on the independent proposition.

However, 30 per cent of firms indicated that they still had not broached the subject with their clients.

Most firms are using a platform for their investment business, with a hike to 80 per cent from 70 per cent in May. Those preferring to conduct their investment business through a product provider wrapper dropped from 22 to 12 per cent.

AEGraph

Fees

The average level of fees charged for initial advice dropped slightly over the quarter, but not by a large amount.

The average fees in the chart (right) take into account a wide range of initial advice fee levels, but the most common initial advice fee rate was 2 per cent for pension transfer and drawdown advice and 3 per cent for investment advice.

The level of fees appears to be independent of the firm’s costs as they show little correlation to the size of the business, the amount of money under advice or the number of staff. There is a slight positive correlation between the fee levels and the number of client meetings held per week and the proportion of these meetings held in the IFA’s office, which could suggest those IFAs that see their clients more often, and in their office, charge more. 60 per cent of firms had separate fees for advice and transactions.

The average IFA firm

The average annual revenue for the IFA firms in the survey was £708,000, with most having annual revenues below £360,000. On average, 40 per cent of a firm’s annual revenues came from existing clients. The average assets under advice for those existing clients was £98,384,812 split among an average of 562 clients per firm. The average client therefore had assets of £175,061.

There was an average of four registered individuals (RIs) per firm, but most common was the one-RI firm. The average RI contributed £117,215 of revenue to the firm, looked after 140 clients and ran four client meetings per week.

When asked how the assets under advice within their firm would change over the next five years, September’s respondents were more circumspect than those in May, with most selecting up to 50 per cent growth.

  • How does your business compare?

    The objective of this survey, sponsored by Standard Life and threesixty services, is to help IFA businesses understand how they are progressing on the road to RDR readiness and how they match up to other firms in the market across a wide range of factors including costs, revenues, productivity etc. Each IFA firm that participates in the survey receives a free summary report which compares its actual progress towards RDR with the firm’s own estimate and highlights areas that need attention. The report also allows the firms to benchmark themselves in relation to the market by comparing their revenues per Registered Individual (RI), charging rate and many other factors.

    Send your name and the name of your firm to support@cimetric.co.uk to take part in the current round of the survey and receive your free, confidential benchmarking report. Closing date Friday 7 December.

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