Coronavirus  

New advisers to bear the brunt of Covid-19’s bite

New advisers to bear the brunt of Covid-19’s bite

Newer advisers will be hit hardest by the financial impact of the coronavirus crisis due to their reliance on new business, advisers have warned.

Experienced advisers said attention has turned to the drop in new business that has knocked initial fees and one-off payments.

Businesses at an earlier stage of their lifespans are likely to rely more on initial revenue, which is set to be worst affected by the market and financial uncertainty caused by the coronavirus crisis.

Ruth Whitehead, of Ruth Whitehead Associates, said: “I’m sure I am not the only IFA firm deeply grateful for ongoing income, however depleted, in the current circumstances.

“I know so many firms almost entirely dependent on a constant flow of new instructions who are deeply worried about the future.”

While March’s severe market drops raised concerns that ongoing fees could be chipped away by lower assets under management, the subsequent recovery has lessened those worries for now.

Instead, advisers are more concerned about the longevity of their businesses – and while established companies have been able to maintain their clients’ trust, young advisers without a track record will lack the financial resources to overcome any drop in revenue.

Martin Bamford, head of client education at Informed Choice, agreed. He said: “The headlines showing massive drops in global equity markets are not the experience of the majority of clients invested in well-diversified portfolios.

“Looking over the past year, the maximum loss in our client portfolios is around 5 per cent, and less than that on average, so our recurring revenue will hold steady for now.”

Over the two months to May 1, the Investment Association Mixed Investment 20-60 per cent Shares Sector – which represents a typical mixed portfolio held by most advised clients – is only down 5.5 per cent, suggesting advisers with an income primarily from ongoing fees may not be feeling much of a pinch.

 

A recent poll of advisers by Rowley Turton found that Covid-19, and the resultant lockdown measures and social distancing rules, had put the brakes on new business.

Some 62 per cent of respondents had seen new business enquiries fall by 51 to 75 per cent over the past month, with 12 per cent reporting enquiries had fallen more than 75 per cent.

Scott Gallacher, director at Rowley Turton, said: “An adviser with limited funds under management and mainly working with new clients could see their income fall by 50 per cent if new business dries up, and this is obviously not sustainable long term.

“However an older, established adviser perhaps nearing retirement does not look for new clients. Instead, they prefer to look after their existing clients. They potentially see a 5 per cent fall in income.”

However, relative newcomer Sarah Drakard, IFA at Cruze Financial Services, said the market drops had not affected her income in part because of the other financial planning services she provided.

She said: “I see ongoing fees almost as a bonus. The bulk of my income comes from initial fees. That [may] change when I’m in a different stage of my career later on.