Adviser profit deluge shows light at end of RDR tunnel

A brief glance at the FTAdviser comment boards on any given week will reveal countless comments from adviser readers bemoaning that the Retail Distribution Review will be the straw that breaks the metaphorical camel’s back.

It is not just advisers, the trade media too typically tends towards eschatological headlines that tap into the sector’s above-described morbidity.

Some of these stories are obviously important and rooted in irrefutable evidence; many are little more than an easy way to boost readership by feeding a seemingly masochistic audience what previous experience shows they will be unable to refuse to consume.

I completely agree with the concern surrounding a paucity of fresh blood - and the nebulous ‘advice gap’ is at the very least a stain on the reputation of a regulator that had clearly not even researched the potential consequences of its five-years-in-the-making rule changes for the consumers it is charged with protecting.

But to argue, as many continue to do, that there is no economically viable future for advisers in the post-RDR world, or that to be viable all businesses will be forced into an internecine battle for a modest pool of high net worth clients, is simply not borne out by the evidence we have.

In fact, of the firms that are either listed or of a sufficient size that their business performance is keenly watched, results reported so far in 2013 have been almost exclusively positive.

Just this week AFH Financial, a listed IFA firm that has been aggressively buying up businesses in the past couple of years, announced that like-for-like revenues and recurring income increased by 55 per cent and 58 per cent respectively for the six months ended 30 April 2013. Like-for-like profit before tax was up 90 per cent to £834,591.

On the same morning St James’s Place - by no means the favourite firm of many advisers, but nonetheless an intermediary operating in the post-RDR world - announced that operating profits increased 39 per cent in the first six months of this year, while pre-tax profits doubled year on year to £444.6m.

To argue that there is no economically viable future for advisers in the post-RDR world is simply not borne out by the evidence we have

In the middle of last month, another listed IFA, Frenkel Topping, which has a unique business model that focuses on clients who have received personal injury settlements, posted an increase in profit before tax of 22 per cent to £578,478 in the six months to the end of June.

In June, I-Financial Services Group, the listed financial services group that owns Hertfordshire IFA Lyndhurst Financial Management, said it had returned to profit during the first quarter after RDR implementation and was “confident of maintaining for the rest of the year”.

The firm made a loss for 2012 mainly as a result of an investment writedown of £70,000 and income dropped over the 12 months due to RDR preparations, its operating profit actually rose during the year from a loss of close to £41,000 in 2011 to a gain of around £43,000.

Adviser network Intrinsic Financial Services reported in May a pre-tax profit for 2012 of £24.3m, a turnaround of close to £27m after it posted a pre-tax loss of £2.5m in 2011.

I could go on, but I’m sure by now you’ve got the picture.

Of course, I’m not saying there will not be examples at the other end of the scale or that challenges do not remain. What is clear, however, is that there are viable models that can not only survive, but prosper in the post-RDR world.

That advisory businesses are in demand was further emphasised last week with back-to-back studies from Axa Wealth and Standard Life, which some (including myself) have optimistically postulated could suggest a viable advice market of six figures in size.

If the number of advisers in the sector or in the pipeline is the key obstacle to success - and anecdotal evidence suggests that it is - then this is where we must direct our energies. Getting regulatory fees down and ending the perceived persecution of intermediaries by, among other things, introducing a long-stop would be a great start.

But we must also end the elegiac exaltations that make the sector seem an unattractive place to be. Not only do advisers invariably talk warmly of their love for their job and the help they are able to offer clients, but based on the above examples I’d say it also looks an extremely profitable place to be.