When it rains, it pours. News aplenty on Thursday morning with announcements that Raymond James is to acquire Charles Stanley and Lloyds Banking Group is swooping for Embark. On the same day, the FCA published its annual figures on the state of the advice market.
These data are based on the Retail Mediation Activities Returns (RMAR) of all firms providing advice on mortgages, insurance and retail investments. We’ve crunched the numbers to pull out the big trends that are impacting the financial advice market in the UK.
Advice firms increasing productivity, but not the largest firms
The average retail investment revenue per adviser is £168k for firms with a single adviser, rising to £189k for firms with 2 to 5 advisers and £196k for firms with 6 to 50 advisers. These figures have all increased year-on-year.
Firms with more than 50 advisers have struggled with productivity in 2020. Retail investment revenue per adviser, at £157k, is lower than smaller firms and has fallen year-on-year. This may reflect larger firms’ focus on recruiting new advisers and the tendency for some of the more entrepreneurial individuals recruited through acquisitions going off to set up their own businesses.
95% of firms with 1 to 50 advisers made a pre-tax profit in 2020. However, only 54% of those with over 50 advisers did so. There are many successful small advice firms out there – many being run as lifestyle businesses. Economies of scale are often hard to realise in large financial advice firms. And consolidators have a lot of goodwill to amortise, which inevitably eats into profits.
Charges from retail investment advice have fallen slightly year-on-year. However, that is to be expected when markets are lower and fees are predominantly based on a percentage of assets.
Number of financial advisers falls after rising for the last four years
There were only 56 fewer financial advisers working in financial advice firms at the end of 2020 (27,501) compared with 2019 (27,557).
But the total number of advisers in the market has been growing by several hundred a year for the previous few years. We’re currently seeing huge capacity constraints in the market, with a shortage of qualified advisers, so the pandemic has set back the recent progress here.
Consolidation is showing its effect on the market
5,137 directly authorised firms have a primary category of financial adviser, down from 5,236 the year before.
There has been a further increase in firms with 50 or more advisers (+3) and advisers working for those firms (+555) in 2020. These rises are largely down to consolidation in the market. Small, directly authorised firms are also joining networks to help with compliance, support and administration.
Financial advisers have focused more on existing clients with a decline in new business and one-off advice due to the pandemic
454,449 individuals were taken on as new ongoing clients in the year. This compares with a much higher 735,996 in 2019. Initial/one-off/ad-hoc advice services in 2020 were way down on 2019 too, with a higher proportion of advisers’ revenue coming from ongoing advice services.
Overall, advice firms remained incredibly resilient through the pandemic, especially when compared with other sectors of the economy. It was harder to bring in new business in a remote environment, but relationships with ongoing clients stayed strong. The typical advised client was depositing more money into their portfolio. With the household savings ratio remaining high, 2021 looks set to be a bumper rebound year for the UK advice market.