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State of the post-RDR market: Adviser profits up 20% but non-advised market share grows

Adviser profits leapt at both an individual and firm level in the first year of the RDR, research from Apfa reveals.

But the research also found that non-advised sales accounted for a greater share of the market last year than in 2012.

The trade body has complied data on firm and adviser numbers, profit figures, and the number and segmentation of clients based on FCA figures and figures from Apfa’s own research with NMG Consulting.

It shows the average revenue per firm increased by 3 per cent, from £738,025 in 2012 to £759,651 in 2013.

The average revenue per adviser rose by 6 per cent, from £158,429 in 2012 to £167,863 in 2013.

Meanwhile the consolidated pre-tax profits for adviser firms increased by 14 per cent, from £835m in 2012 to £953m in 2013.

The figures are for ordinary activities before tax and relate to business generated by firms with an FCA primary category ‘financial adviser’. However, Apfa notes the figures are shown before dividends and therefore may not reflect the full costs of running a firm.

The average pre-tax profit per advice firm was £189,281 in 2013, up 16 per cent from £163,027 in 2012.

The average pre-tax profit per adviser rose by 20 per cent, meanwhile, from £34,996 in 2012 to £41,826 in 2013.

Apfa_profitchart_2014

The report also reveals the split between advisers’ income sources.

It shows that 29 per cent of advisers’ income comes from pre-RDR investment business, 27 per cent comes from post-RDR initial fees, and 23 per cent comes from post-RDR ongoing service fees. About 15 per cent comes from commission on non-investment business and the remaining 6 per cent from other sources.

The survey also shows that 87 per cent of advisers’ overall income comes from independent advice, while 9 per cent comes from restricted advice and 4 per cent comes from ‘focused advice’, which the trade body likens to simplified advice.

The research reveals a significant increase in the proportion of non-advised sales.

It shows that among all financial services firms that sell retail products, the split between non-advised and advised sales has risen from 41 per cent versus 59 per cent in 2011/12, to 50:50 in 2012/13.

Among the financial advisers, the proportion of non-advised sales has risen from 28 per cent in 2011/12 to 33 per cent in 2012/13. The proportion of advised sales has fallen from 72 per cent to 67 per cent.

Apfa director general Chris Hannant says the report provides a “snapshot” of the market during the first year of the RDR.

He says: “The rise in non-advised sales demonstrates the need for a level playing field , regulation wise, between advised and non-advised sales.

“The advice industry has performed well, though, with retained profits up on 2012.”

Apfa_chart_nonadvised_2014

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Comments

There are 19 comments at the moment, we would love to hear your opinion too.

  1. Hang on a mo. What about all those moaners who said that RDR = Armageddon? Please explain AIFA’s abandonment of Independence to become APFA when according to these figures the vast majority of turnover is transacted by INDEPENDENT advisers.

    The non advised stuff is obviously the mass market.

    Those of us who kept the faith can only say – “We told you so”. To those who were hand wringing (are you reading this Alan?) it seems that you were wrong.

    That doesn’t mean that there is unalloyed cause for celebration. There are still hurdles – after all that’s what regulation is there for.

  2. Well lets all go round to Hectors nice garden and shake him by the hand !!!!

    I think these figures are hardly a surprise, less advisers in the market, most people took a lot of time out to pass the exams, a huge amount of expense pre 2013 not only RDR cost but the levies too !!!

    Has it worked overall ? I would argue not, was the soul purpose to raise the revenue of IFA’s, ? not on your nelly it wasn’t !!!

  3. DH’s point is a good one, in that the purpose of the RDR was not to make advisers more money (although good luck to them that are) probably equalling higher costs to the public. It was to raise standards and supply greater access to advice for the the masses. I don’t believe that I am any better an adviser than I was before I took the exams and I did find it extremely expensive / time consuming and am still spending much of my time moving people from commission to fees, which is not particularly lucrative in my case, being a one man band with no admin assistance.

    The RDR was not, also, designed to lose thousands of decent advisers their jobs and there is less access to advice than there ever was before. So where are all the RDR benefits apart from some higher profits?

  4. Patrick

    What you say has an inconsistency – or perhaps you haven’t ‘twigged’ the logic.

    “It was to raise standards …”

    Raised standards or improved quality is always the driver of higher costs. Otherwise why drive a BMW instead of a Daewoo? That the Regulator may have missed the point is another matter, but this path was never going to lead to greater access to advice for the masses; who in any case (by and large) don’t engage and anyway their first priority should be to reduce debt.

    It is beginning to look as if RDR may have done advisers a favour in pushing them to review their client base and at the same time making the middle ranking and higher earners well aware that there is no such thing as a free lunch.

  5. Harry: no doubt those advisers willing to run on fees and top slice their clients banks will make more money. That was never the argument. It was the advisers whose didnt have that sort of clientele. It was allowing the regulator to interfere in the relationship between client and adviser. It was the millions of clients who no longer have access to active advice

    I am all right Jack does not offer a counter argument

  6. Have to admit I am enjoying some of the RDR outcomes that have come my way, the best one is I agree with clients waht they pay, not have to take whatever the providers decide. Like most, I still charge a percentage fee and this has gone from 3 + a half to 4.0 (on first £250K then negotiated thereafter) + 0.75. Below the £250K its not negotiable. Have priced myself out of 3 potential clients doing business with me but I can happily live with in the 15 months of post RDR wolrd. I have never been a subscriber to story that the trail commission being there to pay for any ongoing service. I am old school thinking on this in that it was a way of deferring initial commission and building up recurring income to my business. The fact that if I have to now provide a service to charge any ongoing fee means that it costs me money to do this and I am not footing any of this cost. It is fully passed on to clients. If they want to have it they need to pay for it – some dont but most do. I have had to spend a lot of time, effort and money getting qualified and changing my business around in order to meet RDR requirements and as in all walks of life the better qualified the “adviser” (be that legal or financial or accountant) the bigger the bill. Have no problem with this at all.
    If prospective clients don’t want to use me, that’s fine they can go elsewhere and some do but the vast majority who come to me don’t as they are referred by clients. Long live the RDR.

  7. Gary
    It isn’t a case of I’m all right Jack, but one of commerciality and transparency. There may have well been those who declared every penny under the commission regime, but I’ll put money on the fact that they were the minority. This was also fostered by the life offices, who I have said on many occasions, encouraged the poor practices by putting commission disclosure on the last page possible and burying it whenever they could.

    I don’t know to what clientele you refer, but the less well-off have never had a good deal. They are generally the ones with the highest levels of debt as a percentage of assets or income, so how much of a favour are they getting by not being advised to reduce debt first?

    I think Marty provides a reasonable example. He shows that he has the commercial nous to rearrange his business model. Much of the problems in the advice sector emanate from the fact that although many advisers may have expertise in pensions, or life assurance and often come from a Life Office background and have spent all their lives in Financial Services – it doesn’t mean that they know how to run a business. Reading much of what comes out of the Regulator and the industry seminars offered and reading much of the output, it becomes pretty evident that far too many don’t have the first clue of running a business. We may be advisers, planners, wealth managers or consultants, but this doesn’t detract from the fact that first and foremost we are in business and therefore must have the ability, skills and knowledge that this implies – in addition to all the rest that our occupation demands.

    I well remember your campaign against the £10k capital adequacy. Good grief if you want to run a corner shop you need more than that! Being able to set up with no more than a suit and a briefcase is not good business practice.

  8. I agree not all IFAs make good businessmen but most businessmen get to decide how they charge their clients their services an products without being restricted by a regulator who has not thought out he consequences.

    Viz Capital adequacy – the argument wasn’t that IFA should have not have substance but that use of Capital adequacy was principally a banking mechanism and IFAs are not banks. No other profession seems to need any more than solvency although “super solvency – solvency and an amount” could have been a way forward.

    Allowing the use of Capital Adequacy potentially exposed the sector to the sort of cull that happened in Sweden in the 80s where a nascent IFA sector had taken 40% of the FS market from the banks in 5 years. The banks successfully used CA to kill of the new sector by increasing the level to 50,000 euros. As banks they had that type of capital in spades – advisers didn’t

  9. Sorry Marty but you or me earning more money was / is not an RDR objective, it an unintended consequence (and a very nice one from the money we have had to shell out pre 2013) and one I personally enjoy.

    From what you say we are not dis-similar, but the fact remains the stated aims of the RDR have largely failed, and its quite wrong for people to presume that it is a success just because we are earning more money (or back to the levels before this whole RDR nonsense).

    So yes I am glad to have the increase in revenue (who wouldn’t), but to pin this up as a RDR success sorry but no !!

    Maybe there is no pleasing us RDR “MOANERS” as Harry would put it, but it simple has not worked

  10. DH

    Depends what you expected. The Regulator was hardly likely to say that the less well off should stop wasting their money and concentrate on reducing their huge debts. It’s all very political and they had to make some emollient sounds as far as the mass market is concerned. After all they well knew that the less well off had abysmal retention rates – just what the providers enjoyed as it was hugely profitable for them in the old high initial charge days. Claw back from the adviser and keep the lolly.

  11. Sorry Harry

    Why have you got this fixation that the less well off (as you term them or some times thick) are strapped with huge debt ?

    And to be honest the vast majority of my clients of the past 22 years or so started as low earners but have grown into very nice clients thank you very much.

    Re – providers couldn’t agree more but that’s a bit off subject !!

  12. @DH – Independant research showed that over 50% of the population had ‘significant’ debt. Only around 20% had investable assests of £5000 or more and clients with £50,000 of investable assets were well in the single digits.

    The fact is that advise(able) clients are only a very small proportion of the entire market. When you look at the spread of money accross the population, the ‘advice gap’ is debt related not investment related.

  13. Thank you Matthew. Far more erudite than I have been. Why oh why doesn’t the adviser community recognise this?

  14. @ Harry – We probably don’t recognise it as most of our clients come via referrals from people simialr to our existing clients.
    Based on Matthews figures of only 20% having investable assets, all my clients are in the 20% it woudl seem as I have a very small “client base” as they are people on monthly retainer fees who require and request ongoing advice and support. Historically we’ve dealt with people outside this 20% for one of transactional work, mainly mortgage and protection based, but this isn”t where most IFA’s work as IFA only refes to investment and pensions on the FCA definition and not mortgages and protection.

    Most mortgage and protection advice IS transactional (and falls i n to the other 80% of consuemrs) and you don’t need an IFA for that, you need a whole of market mortagge adviser (preferably one who will also advise on direct deals for a fee rather than from a “representative sample” of commisison. only lenders) That’s not to say an IFA will not do the same job and can therefore be used, but an IFA practice with a mortgage and protection adviser (level 3) used for this work rather than the elvel 4 investments adviser is a better use of different skill sets and fee levels.

  15. @Phil

    Well I don’t fit your Mortgage/Life mould. I charge fees for both. The fee is payable for the advice – whether or not a product results. Indeed I often refer Mortgage clients directly to the lender if that lender has deals that intermediaries can’t access and are cheaper that I can obtain. In fact I have just completed one such meeting this afternoon. If I arrange than the proc fee is returned to the client.

    When clients see the difference between commission and non commission terms for life assurance (even when my fee is included) it’s a no brainer and they are glad to pay the fee.

  16. @ Matthew

    I don’t dispute your independent research figures, however what I do have issue with is the blanket assumption that all low earners are in debt up to their ears, thick, stupid or any other !!!

    I tell you for why; my dad has been a low earner all his life in all honesty never earned above 25k, and never been in debt in his life (other than his mortgage), my mum by and large never had an income !!! oh and he has managed to fund all kinds of things pension savings etc etc to help him. This is not uncommon but quite common in fact and have many clients in a similar position.

    With regards to the research showing 20% having investable assets of only 5k; do you know there is a thing called saving ? over time this will build up and provide for nice shinny things in the future (if you are a magpie)

    The huge debt problem is not just a blight on low earners I know a good many middle/high earners with huge debt and not a pot to pee in, they cant afford to save but they have a nice BMW on the drive (not a Daewoo Harry !!!)

    And to coin Harry’s phrase “Why oh why doesn’t the adviser community recognise this?” I would only add the words “some” and not limit it to just IFA’s but also the regulator !!!

    Sometimes its nice to walk down the stairs of one’s ivory tower take off the rose tinted specs and have a look around !!!

  17. @ DH

    “…I know a good many middle/high earners with huge debt and not a pot to pee in, they cant afford to save but they have a nice BMW on the drive…”

    You are absolutely right. If car salesmen had the same rules as mortgage intermediaries this sort of thing would cease. But overall we live in a society which encourages debt and penalises prudence.

    Much of this can be fairly laid at the door of recent politicians from Blair onwards (including this lot). Our economy is reliant on us eating our own tails. Yes Boy George has upped the ISA limit, but how long before there is a tax grab on these?

  18. I make no apology for revisiting the basic fact that the so called mass market is not an area for advisers. Today say research from PWC on pensions – particularly in relation to the new rules on annuity purchase (or non-purchase).

    I think this again underlines what I have been trying to say (largely to deaf ears) for ages :

    ” Based on a survey of 1,208 consumers aged between 50 and 75, PwC found 63 per cent of respondents intend to pay for advice on accessing their pension at retirement.
    However, half of the respondents in the survey had pension pots worth £40,000 or less.”

    If this is representative of the Nation as a whole then all I can say is that those insisting on trying to serve the mass market better get real before they go bust.

  19. @ DH I have neer made any comment that suggests low earners are all in debt or thick.

    I agree that many low earners manage their money well and should be saving. It is however, unlikely that many will need advice on investing £100k during thier working lives.

    The problem many people have had over the last decade is that they are taking on too much debt (generally) and when they do have money they are pushed towards investing rather than saving (mainly by the banks).

    I think everyone would benefit from a society that moved away from debt reliance, and instead focused on saving, through cash ISAs and pensions so that in years to come these people had genuine wealth which they could then invest if wanted.

    I do think that it is highly unlikely that these people will ever need regulated advice until they develop that wealth in later life and basic, sound high level financial principles (promoted by government/society/MAS/CAB etc.) should be followed until then.

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