Your IndustryApr 28 2016

FCA reveals what average advice firm looks like

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FCA reveals what average advice firm looks like

A Financial Conduct Authority survey of hundreds of advisers has captured the way intermediaries are changing the way they work post pension freedoms.

The survey, carried out in November 2015 and published today (28 April), was part of the regulator’s work for the Financial Advice Market Review.

Where do firms make their money?

Firms told the FCA that, on average, 42 per cent of their revenue from regulated advice was from advice on investments.

Another 21 per cent of revenue was attributed to advice on pension accumulation and 16 per cent to that on retirement income.

The remainder of revenue was from other advice areas, such as protection products, mortgages, and general insurance.

There was a large variation in revenues from regulated advice on retail investment products across firms.

Of those that provided details of their revenue for the most recent 12 months they had data for, 80 per cent had revenue of less than £1m, and the largest 20 firms had at least £4m revenue.

The largest 10 firms all had revenues of more than £20m, while the median firm revenue was £223,000.

Who are advisers’ clients?

A total of 8 per cent of customers advised had pension pots smaller than £10,000 and 18 per cent had pension pots in the £10,000 to £29,999 band.

Overall, 46 per cent of customers had pension pot sizes of less than £50,000.

Meanwhile, 69 per cent of new and existing customers had investable assets of less than £50,000 while 57 per cent had less than £30,000 and 19 per cent had less than £10,000.

The FCA found that, generally, more customers of large and medium firms had lower levels of investable assets when taking investment advice, compared to customers of very small firms.

For example, 19 per cent of customers advised by firms in the medium and large segment had investable assets of less than £10,000, compared with 12 per cent of very small firms’ customers.

Insistent clients

Where a customer was deemed to be insistent, 58 per cent of firms would not give advice on defined benefit to defined contribution pension transfers to existing customers, compared to 61 per cent for new customers.

This was more than the 33 per cent who would not give advice on safeguarded benefits to existing customers, compared to 37 per cent for new customers.

Potential liabilities arising from future Financial Ombudsman Service complaints was seen as the most important reason for this, with 85 per cent of respondents believing this to be “very important” or “important”.

Advice and the use of technology

The majority (94 per cent) of investment advice by value (average across firms) was delivered using face-to-face meetings, with a small fraction (6 per cent) being delivered by telephone.

Only four firms in the sample (less than 1 per cent) said they used “automated advice”.

The majority of firms reported that they used technology to a significant degree for research and analysis, risk profiling, customer data management and reporting, and monitoring and providing ongoing advice service.

Only 15 per cent of firms said they used technology to a significant degree for providing customers with tools to aid decision-making and transacting, while 46 per cent of firms said they did not use technology at all for these purposes.