Adviser profit margins hit 8-year high

Adviser profit margins hit 8-year high

Adviser profit margins are on the up but are still hovering below some of their European counterparts', according to new research.

Market analysis by Plimsoll Publishing showed that the average company profit margin for independent financial advisers and mortgage brokers in the UK continued to rise over the past year.

The findings, based on analysis of 1,600 firms which is updated by latest data from Companies House, showed the average company profit margins for IFAs hit 6.5 per cent in 2019 — the highest level of profit in the past eight years, according to Plimsoll.

The figure is up from 6 per cent last year, a low of 3 per cent just two years ago, and almost triple the average profit margin eight years ago.

While profit margins have increased across the majority of the UK IFA industry, the findings showed that firms with sales of between £3m and £5m saw a slight decline from 6 per cent last year to 5.5 per cent in the current year.

Those selling between £30m and £50m had the biggest rise in profit, followed by firms with sales of more than £50m.

Data from Italy and Spain revealed a similar increase in average profit margins to that of the UK industry, although currently IFAs in both countries have larger profit margins than in the UK.

Average profit margins for Italian IFAs rose from 9.7 per cent to 12.4 per cent, whereas in Spain, average margins increased 4.9 per cent to 10.6 per cent in the current year.

The increase in company profit margins has also been replicated in the mortgage broker industry, the findings showed.

Average profit margins for mortgage brokers in the UK was up 11 percentage points to 5.3 per cent — less than the average IFA profit but up from 4.2 per cent last year.

The figures also show that mortgage broker profits have seen a steady rise over the past eight years.

Kay Ingram, director of public policy at LEBC, said: "Generally IFA businesses have seen growth in turnover and profits post the retail distribution review.

"This reflects the increase in demand for advice primarily driven by an ageing population at and in retirement and the greater need for advice as more retirees rely on money purchase pensions and have more choices to make following pension freedoms."

Dave Penny, managing director of Invest Southwest, said it was hard to speculate on the reasons behind changes in IFA profits but said his own firm had seen a good year.

He added: "The reason some firms have seen a slight decline could be down to the fact new money into investments and pensions has been subdued, riskier fields bring higher costs and staff costs are rising too."

Dan White, of White Financial Services, said the rise in mortgage broker profits was partly down to the fact the industry was more aware of having to diversify into other product areas, such as protection and general insurance.