Your IndustryOct 5 2021

Restricted advice costs 28bps more, report finds

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Restricted advice costs 28bps more, report finds

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.

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.

"While these are all strong indications of businesses bouncing back from a bruising year, the study also shows that advice firms are thinking strategically about building a future-focused client base, with efforts to attract younger clients, improve use of technology to streamline processes and bring younger planners into the practice."

Sarah Lord, president of the PFS, welcomed the recruitment numbers stating “the need for financial advice has never been greater.

“The demand for financial planning is only set to grow as the pandemic shone a light on how vital it is to have financial resilience to weather any storm that may come your way,” she said. 

“It is hardly surprising to hear so many of our firms are looking to hire and recruit as they can know that the need for their services will grow in the years ahead.”

Life after Covid

Financial advice businesses are keen to grow both their assets as they continue life after covid.

More than two thirds (67 per cent) plan on increasing their assets and around one in five also plan to grow through acquisition.

Meanwhile, the survey also found half of financial advice firms were working toward chartered status and one third had already achieved the designation. 

Lord added: "It is also great to hear there is renewed appetite among our members to further expand their knowledge and skills while pushing on towards becoming Chartered Financial Planners. 

“Chartered status demonstrates the commitment of individuals working in our profession to go above and beyond regulatory requirements to meet the needs of their clients.

"In these uncertain times, this new report makes one thing crystal clear: the benefit, value and size of our profession is only likely to grow in the years to come."

Attracting younger clients

One third of financial advice professionals also said they were actively looking to work with younger clients. 

Those looking to attract younger clients stated three routes: technology investment particularly for client facing activities and the website, organic referrals using existing clients to recommend the services to family, and hiring younger advisers.

Adoption of specialist adviser tech solutions is growing and in particular, the use of client portals. Over the past two years, it has increased 16 per cent, currently sitting at 70 per cent.

The usage of eSignatures is also on the rise with 65 per cent of firms now using them, up from 53 per cent in 2020.

With the rise of robo advice in the industry, the survey asked financial advice professionals in 2019 and again this year if they offered or refered clients to a digital advice offering. 

Approximately 71 per cent said they did not, down from 79 per cent two years ago. 

The report said: “While progress is slow – the share that offer clients a digital advice proposition has doubled from 5 per cent to 10 per cent in two years. A further 7 per cent say it’s in development and 13 per cent have it under consideration.”

sonia.rach@ft.com

What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know