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Restricted advice costs 28bps more, report finds

Restricted advice costs 28bps more, report finds

Restricted advice costs clients more than its independent counterpart, a report has found.  

 

Research by the Personal Finance Society and NextWealth, found clients of restricted advisers pay on average 28 bps more in overall charges than those with independent financial advisers. 

Clients of advisers working in the largest firms, with over £500m in assets under advice, also pay more on average.

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The report said there was a particular delta on fund charges for these larger firms with clients of the largest firms paying an average of 69 bps for funds (including transaction charges), 12 bps more than would be the average.

The report found the average total cost of investing, combining advice, funds, portfolio management and the platform was 187 bps.

Of this the advice charges were highest at 68bps and the platform fees were lowest at an average of 25 bps, based on estimates. 

It also found that clients of financial advice firms that work with lower average portfolio values paid a lower basis point fee for advice and funds but more for the portfolio management and platform charges.

Adviser recruitment 

The report, titled Financial Advice Business Benchmarks 2021, was based on a survey of 278 PFS members conducted between July 14 and August 13, 2021. 

It found more than half of advisers (57 per cent) planned to recruit for their firm in the next 12 months, up from 32 per cent in 2020.

Firms were most eager to recruit client-facing financial advisers and planners, paraplanners, researchers and support and operations staff. 

But hiring was a lot more prevalent in larger firms, with only 38 per cent of firms with two to five employees looking to hire, compared with 87 per cent with more than 50 employees. 

Smaller firms were primarily looking to hire client-facing financial advisers and support staff.

This comes as it was reported earlier this year that some of the bigger advice firms had been slower to move when it came to recruitment in a post-Covid environment. During the pandemic many UK advice firms saw a decline in profitability through 2020 and a large number of firms implemented recruitment freezes - or were making redundancies.

Meanwhile, despite a difficult 2020, financial advice professionals are seeing a renewed boost in the number of active clients, according to the report. 

Nearly two thirds (65 per cent) said their number of active clients was up compared with 45 per cent in the previous year.

Average client portfolio size was also up by more than £40,000 year on year to £346,000, representing a 13 per cent increase over 2020 and 8 per cent over 2019.

Heather Hopkins, managing director of NextWealth, said: "After a year in which new client numbers and recruitment stalled, this year's Financial Advice Business Benchmark study shows almost two thirds of firms are working with more clients than in the previous year; well over half are planning to add headcount during the next 12 months, and gross revenue and average client portfolio value are both up on last year.