In March 2016, the Association of Professional Financial Advisers (APFA) published its annual survey – The Financial Adviser Market: In Numbers. It shows that whilst many firms’ turnover figures remain strong, profits have been hit by regulatory costs, especially the size of the levy paid by firms to fund the Financial Services Compensation Scheme (FSCS).
Firms who are authorised to offer advice, but for whom it is not their main activity, are excluded from the figures given in the report. The survey covers firms who offer personal investment advice, so firms that only offer mortgage and/or insurance advice are not included.
The total turnover of the UK’s financial advisory firms was up 8% in 2015 when compared to the previous year, from £2,532 million to £2,751 million. However, pre-tax profits were down by just over 10%, from £931 million to £835 million; and retained profits (profits after tax and dividends have been deducted) fell by 65% from £171 million to £61 million. Profits before tax as a percentage of revenue from regulated activities fell from 23.63% to 19.57%, the lowest figure for six years. Retained profits are now just 1.44% of revenue for advisory firms.
The recent Financial Advice Market Review (FAMR) recommended that the FSCS should look at introducing risk-based levies based on individual products, and on reforming the existing funding classes.
At the end of 2015, there were 14,491 firms legally able to offer financial advice, of which 5,263 were directly authorised and 9,228 were appointed representatives. At the end of 2014 there were 14,550 such firms.
15% of directly authorised firms are sole traders or partnerships, while the remaining 85% are limited companies or Limited Liability Partnerships.
The number of advising staff who work at advisory firms rose slightly from 23,640 at the end of 2014 to 23,864 on December 31 last year.
The average firm has 201 clients, of which 130 are ’active’ clients, who are receiving ongoing servicing and/or engage regularly with their adviser.
Chris Hannant, Director General of APFA, said:
“Three years after the wide-ranging changes that came in following the Retail Distribution Review, the number of advisers remains steady but still below pre-RDR levels. The steady increase in turnover over recent years continued in 2015, but profits across the sector were significantly down by about £100m. For me this clearly demonstrates the impact of FSCS levies on the viability of the sector. Retained profits fell 65% to £61m. This shows how unsustainable the current system is, with the FSCS levies severely undermining the capacity to generate funds to invest in the future.
“Although I believe that elsewhere the FAMR final report could have gone much further in ensuring access to affordable advice for consumers, we welcomed its recent recommendation that changes be made to the current FSCS levy approach. The figures we have released today show the urgent need to replace the existing system with one that is sustainable and fair. Only when advice firms’ business models are sustainable and profitable will they be encouraged to enter the market and innovate to help close the advice gap. We look forward to engaging with the forthcoming FSCS levy review and urge both the government and the FCA not to shy away from undertaking the significant and radical changes which are necessary to reduce the regulatory burden on financial advisers and cut the cost of advice.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.