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Adviser profits dwindle despite FCA pledges

Adviser profits dwindle despite FCA pledges

The profits made by advice firms dropped in 2019 despite the City watchdog insisting it wanted companies in the financial services sector to make good returns.

Financial Conduct Authority data, published today (July 23), showed the average profit retained by advice firms declined for every single size of adviser business between 2018 and 2019.

This was despite the regulator refuting claims that it wanted firms to minimise profits. Former FCA boss Andrew Bailey said last year the sector needed firms to “earn returns”.

Today’s figures show that on average, one-man bands saw their profit drop from £32,000 to £28,000.

Firms with two to five advisers made a retainable profit of £54,000 in 2019, down from £74,000 the year before, while the average profit kept by firms with six to 50 advisers has plummeted from nearly £200,000 in 2018 to just over £150,000 last year.

While advice firms with more than 50 advisers continued to make a loss in terms of retainable profit, this nearly doubled from £630,000 in 2018 to £1.1m in 2019.

 Average retained profit
Type of firm20182019
1 adviser£31,985£28,089
2-5 advisers£74,177£54,247
6-50 advisers£192,017£152,735
More than 50 advisers-£629,954-£1,140,752

Mike Barrett, consultant at the Lang Cat, said: “Profit is not a bad word. It is in the client’s interest to work with an adviser who is around and will be for the long-term.

“We’re hearing this quite a lot from the advisers we speak to. They are obviously a bit introspective and looking at their businesses at the moment, and all of them are focused on making the firm more efficient.”

The total revenue earned by advisers from retail investment business increased slightly, however, from a total of £4.42bn to £4.45bn.

How advisers have received such revenue has changed over the past five years. 

In 2015, the industry saw 31 per cent of its revenue come from commission but this had dropped to just 15 per cent in 2019.

Meanwhile, the proportion of revenue stemming from fees and charges has increased.

It was also clear advice firms had increased the total revenue they received from ongoing charges in comparison to initial or one-off fees.

The amount brought in from ongoing fees increased from £3.3bn to £3.8bn in 2019, while revenue from initial fees fell from £1.9bn to £1.6bn.

The City watchdog has already begun its probe into the suitability of ongoing charges, particularly for clients in retirement, as it looks to see if there is potential for conflict of interest in clients being navigated into products which warrant an ongoing fee.

Mr Barrett said: “You can see why the FCA would be looking into this, when you see advice firms increasing the revenue they get from ongoing fees compared to one-off charges.”

imogen.tew@ft.com

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