One of the nicest things about living where I live is that we get school summer holidays a month before people in the southernmost extremity of this not very united kingdom. So when you’re reading this I shall be somewhere agreeable, conducting extensive quality control over the local food and drink.
But if I wasn’t, I’d probably be thinking about how the adviser market is shaping up based on the latest data from the Financial Conduct Authority, and what that might mean for the technologies we all use or write about or work with in the next few years.
Not everyone knows this, but the data you supply to the regulator in terms of your Retail Mediation Activities Returns eventually surfaces in a bunch of pretty useful tables and charts. You can find this on its website, and the Personal Finance and Investment Management Association also does a useful deeper analysis each year, which costs a little to buy but is well worth it.
Last year’s returns are just starting to come out, and there are some interesting nuggets in there. For example, there are now 42 firms in the UK with more than 50 advisers each. Those 42 companies – about 1 per cent of the total – have about half of all the advisers in the UK. There are just over 500 firms with between six and 50 advisers, and the rest are (spoiler alert) smaller than that. Nearly 90 per cent of companies have fewer than five advisers.
Nonetheless, turnover and profitability are both moving in the right direction. Firms in that six to 50 segment are particularly interesting, with an average pre-tax profit at the thick end of £500,000.
We don’t have statistics on how much these companies look after in terms of assets under advice, but with a turnover in respect of retail investments in the region of £2m on average, and (let’s say) a yield on assets of around 80 basis points – to allow for some variability in ongoing charges and also some initial-type revenue – some basic arithmetic gets us to an artificially neat average AUA of roughly £250m (obviously there will be a big spread in this).
Advisers turned providers
This is important in light of one of the big emerging trends that we see emerging – and one which I’ve written about on these hallowed pages before. That is the idea that the adviser firm stops consuming ‘normal’ retail financial products (especially platforms) and starts to assume some of the responsibilities and benefits of being a provider in their own right.
The reason the £250m figure is interesting is that the inflection point at which this would become economic used to be at least £1bn; maybe £2bn AUA. A couple of years ago I’d have said it was around the £500m mark. But now if you asked me I’d probably pick £250m AUA, and if you were one of the companies right in the middle of that 500-firm segment it would probably be relevant to you in a way today that it certainly hasn’t been before.