The Financial Conduct Authority published a data bulletin based on the information it gathered from advisers through their Retail Mediation Activities Return today (7 June).
Here are the five key takeaways about the state of the advice industry today from the regulator's 20-page document.
1) Independence still popular
Despite talk about the growth of restricted advice, it only accounts for 14 per cent of firms, with independent advice accounting for 84 per cent.
But restricted firms are generating 40 per cent of adviser charges, which indicates that while restricted firms are few and far between, they are disproportionately large.
The data showed the proportion of revenues from restricted advice charges increased to 40 per cent in 2017, up from 39 per cent the previous year.
Independence is more popular among financial advisers - when data from mortgage brokers and insurance intermediaries is stripped out - with only 11 per cent of these firms restricted.
2) How do advisers get paid?
Facilitated payments are the main way advisers get paid for their work, and they are becoming more popular.
In 2017 they accounted for 83 per cent of adviser charges, compared with 79 per cent the year before and 77 per cent in 2015.
Most firms charge as a percentage of the investment, with 4,067 using this for the initial charge and 4,283 using this for the ongoing charge.
Fixed fees are the second most popular way of being paid, with 1,931 firms using this for the initial charge and 1,144 using this for the ongoing charge - though fees by the hour are also popular.
Average charges as a percentage of investment value for initial advice reported by firms are between 1 per cent and 3 per cent. For ongoing charges, the average rates are between 0.5 per cent and 1 per cent. These have remained unchanged from previous years.
The proportion of retail investment revenue earned from commission continued to fall, from 26 per cent in 2016 to 20 per cent in 2017.
3) Revenues and profits are going up
Financial advice firms saw their total earnings increase by 22 per cent to £4.5bn in 2017.
Meanwhile aggregate pre-tax profits increased by 23 per cent to £698m and overall, 96 per cent of financial adviser firms made a profit on ordinary activities before tax for 2017.
Small firms were proportionally more profitable than larger ones. Those with one adviser showed the highest profit margin with an average pre-tax profit of 43 per cent, but this may reflect the likelihood that sole traders pay themselves out of profits rather than as salary.
The largest firms - those with more than 50 advisers - showed an average loss per firm, but this has been skewed by a few firms with large losses since 72 per cent of these firms were profitable.
Revenues from adviser charges increased by 27 per cent to £4.6bn in 2017 but the number of ongoing and initial customers only increased by 8 per cent and 1 per cent respectively over the same period.
This means revenues increased because clients were investing larger sums or, in the case of ongoing charges, the value of investments went up as a result of stock market performance.
4) Professional indemnity insurance premiums cost £300m
Collectively, financial advisers paid £300m in professional indemnity (PI) insurance premiums in 2017.
On average, across all financial advice firms, professional indemnity insurance (PI) premiums were £17,540 - or 1.9 per cent of their revenue - but this masked the wide difference between the amounts paid by smaller firms and bigger ones.
The FCA found that when looking at average premiums paid as a proportion of regulated revenue, small firms generally paid a greater percentage than larger firms.
For example, financial advisers with revenue of less than £100,000 paid an average premium of £2,400 which represented around 4 per cent of their average revenue.
This compared to just over 1 per cent of revenue - more than £882,000 in cash terms - for the large firms with revenue of more than £10m.
5) Advisers going above and beyond capital requirements
Overall, 68 per cent of firms had a capital adequacy requirement of £20,000 or less.
Only 8 per cent of all firms had a requirement of more than £100,000, two-thirds of which were insurance intermediaries with an average capital requirement of £1.2m.
Within financial advisers, 5 per cent of firms fell in this bracket with an average requirement of £603,000.
Meanwhile 68 per cent of mortgage brokers - 993 firms - needed to hold only the minimum £5,000 base capital while this was the case for only 13 financial advice firms - 0.26 per cent of all advice firms.
Overall, 99 per cent of firms held allowable capital equal to or greater than the amount they were required to hold. Within financial adviser firms, 45 per cent had a capital surplus of between £10,000 and £100,000 and 35 per cent had a bigger surplus.
damian.fantato@ft.com
