More than 1,518 financial advice firms typically initially charge clients an hourly fee, with the number of firms charging per hour on an ongoing basis totaling 1,138, the Financial Conduct Authority has revealed.
In a 20-page data bulletin published today (7 June), the regulator revealed that based on the information it gathers from Retail Mediation Activity Returns 96 per cent of financial advisers operating in the UK today are posting a profit.
Total pre-tax profits were up 23 per cent from £569m in 2016 to £698m in 2017 and retained profits were up by 125 per cent from £102m to £230m.
The City watchdog found small firms were proportionally more profitable than larger ones.
Firms with one adviser showed the highest profit margin with an average pre-tax profit of 43 per cent, although the FCA stated this may reflect the likelihood that sole traders pay themselves out of profits rather than as salary.
Average retained profit (after tax and dividends) was 15 per cent of revenue for the smallest firms.
The largest firms (with more than 50 advisers) showed an average loss per firm, although the FCA stated this has been skewed by a few firms with large losses as 72 per cent of these firms were profitable.
In terms of how advisers are paid, for those offering a fixed fee the City watchdog revealed 1,931 firms made an initial charge with 1,144 firms charging an ongoing fixed fee.
The initial charge is where a customer pays for distinct advice services (including initial, one off or ad hoc).
An ongoing charge is where a customer has a continuing relationship with an adviser and pays for ongoing investment advice.
Charge as a percentage of investment value was found by the FCA to be the most typical charge method used by advisers with ‘fee per hour’ and ‘fixed fees’ being the other main types.
Firms may use more than one method of charging and the FCA found the average (median) charges as percentage of investment value for initial advice reported by firms was 1 per cent (minimum) and 3 per cent (maximum).
For ongoing charges, the average rates were 0.5 per cent as a minimum and 1 per cent as a maximum charge.
The regulator found these rates remained unchanged from previous years.
The total revenue from adviser charges increased by 27 per cent (£975m), from £3.68bn in 2016 to £4.65bn in 2017.
Most of the increase was from ongoing charges, which grew by 28 per cent (£0.62bn) from £2.2bn in 2016 to £2.82bn in 2017.
Revenue from initial charges grew by 24 per cent (£0.35bn) over the same period from £1.48bn in 2016 to £1.83bn in 2017.
Facilitated payments were found to be the main form of adviser payment, accounting for an increasing proportion (83 per cent) of adviser charge revenues, up from 79 per cent last year.
This occurs where the product provider or platform service provider facilitates the payment of fees to the adviser.
For example, by deducting the adviser charge from the value of the client’s investment and paying it to the adviser.
Only 17 per cent of adviser charge revenues were paid direct to the adviser by the client, according to the FCA’s data, down from 21 per cent last year.
The vast majority of firms carrying out retail investment business (84 per cent) reported to the FCA that they provided independent advice, with only 14 per cent providing restricted advice and 2 per cent of firms providing both types.
This was almost unchanged from last year when 83 per cent reported providing independent advice, 15 per cent reported providing restricted advice and 2 per cent reported providing both types.
Lora Benson, head of media for the Chartered Institute for Securities & Investment, said there may be a number of factors involved in the soaring numbers of financial advisers posting a profit.
She said: "Certified financial planners have seen an increase in consumer requests for financial advice.
"Professionalism has been elevated, with mandatory CPD and the focus on integrity and ethics."
emma.hughes@ft.com
This article has been amended.
