Anecdotally I heard lots of positive stories from advisers in 2013.
The recent report from Apfa on profitability backs that up, albeit using the always questionable law of averages. Looking at the numbers, total revenues rose by 7.3 per cent while profits increased by 14 per cent.
Investment advice still dominates, at 60 per cent of total revenues, so let us focus on that. There is one obvious contributing factor to the increase in revenue, which is that most advisers charge a percentage of assets advised. When the markets move up, as they did last year, revenue goes up.
Add to that the focus among advisers on wealthier clients and you have much higher revenue per adviser and firm against, ostensibly, the same cost base. That equals more profit. Most firms did their cost-cutting after the 2008 crash and there is not much controllable fat left to trim. So revenue, which can only be influenced by the market and/or average wealth per client, will drive adviser profits while ad valorem charging dominates.
Prior to the RDR, many advisers planned for the worst and hoped for the best. The latter is the trend for now but non-controllable costs – such as those relating to tax and regulation – are the main risk to that.
Phil Young is managing director at Threesixty