IFAs could face 40% income shortfall: CoreData
A quarter of UK advisers could face a 40 per cent income gap from January 2013 as their income is wiped away by the ban on saving and investment product commissions, a CoreData report has found.
According to the 22-page report, CoreData, Adviser Fees and Business Models, the retail distribution review will make a significant dent in the financial strength of advisers.
It said advisers who charge £100 or less an hour derive an average of 41.7 per cent of their income from initial commissions on saving and investment products.
However, the research said roughly 30 per cent of these ‘at risk’ advisers’ incomes can only be attributed to fees – both upfront and on-going. Almost a quarter of advisers in the UK - 23.5 per cent - fall into this group.
Angele Spiteri Paris, senior consultant at CoreData Research, said: “Advisers could try to either raise their pricing for delivering client advice to make up the shortfall or seek more clients to maintain income levels – a huge challenge in this market.
“Additionally or as a distinct alternative, we could see advisers increasing their provision of certain insurance products to clients to generate replacement income streams.”
Higher-charging advisers who provide advice at more than £200 an hour source 56.3 per cent of their income from fees, and derive 24.8 per cent from initial commissions. However, this is true for just 10 per cent of UK advisers.
This contrasts with the income spread of advisers with a more middle-to-lower earning client base. The two groups in between these two extremes will also have income gaps to deal with. The 40 per cent of advisers who charge between £101 and £150 an hour will be faced with a potential 36 per cent shortfall from providing savings and investment advice.
This is the fee bracket home to the largest group of advisers, which suggests that a great proportion of the UK adviser industry will have to adapt.
The quarter of advisers falling into the second most expensive fee band, charging between £151 and £200 an hour will naturally face less difficulty.
Currently, these advisers see 29.5 per cent of their remuneration come from initial commissions, which although still significant, will have a lesser impact on their business revenue streams. Ms Spiteri Paris added: “The whole of the advice community needs to change in the face of RDR, but some just have a much more difficult climb ahead of them.”
Iain Atmore, financial consultant of Glamorgan-based Lifestyle Financial Advice, said: “Advisers have had plenty of notice to change their business models. For the bulk of IFAs who have moved to upfront fees, I do not think these changes will make a huge difference.”
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