According to the Association of Professional Financial Advisors (APFA), there was a 6.5 per cent increase in advice sector turnover in 2016, generating revenue of £3bn by financial advisors on regulated retail investment business.
Fee income increased to £2.2bn from £1.8bn, which offset a drop in net commission of £58m, while the average annual revenue per firm rose to £562,664 from £522,758.
Financial advisers generated average revenue of £121,290 in 2016, which is a rise of £6,191 from 2015 figures. The pre-tax profits topped £779m but were down 6.7 per cent, giving the average advisor a 17 per cent profit margin on revenue.
The APFA is slightly concerned that margins in the sector remain narrow. With the growing need the public has for help, many are questioning whether they will have sufficient access to advice, especially with pension reforms. The Financial Advice Market Review made recommendations that “will consider the current regulatory and legal framework governing the provision of financial advice and guidance to consumers.” APFA feels these recommendations fall short of the significant reform that the regulatory policy environment requires.
Retained profits in the sector more than doubled from £61m to £127m, which would suggest more advisors are holding back profits.
The size of the market has dropped, with 14,491 advice firms at the end of 2015 compared to 14,054 firms the following year. Strangely, the number of staff advising in those firms increased from 23,864 to 24,761, with 39 per cent of these being directly authorised and the remainder being appointed representatives.
Financial advice firms have only 166 clients on their books in the final quarter of 2016 compared to 213 in the first quarter of 2014, according to figures collected by a consultancy firm for APFA.
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Over 80 per cent of directly authorised financial advice firms operate with limited liability, showing a steady increase over the last six years. Nevertheless, 16 per cent of directly authorised firms are operating with unlimited liability as sole traders or partnerships.
All data collated in the annual financial report will help APFA formulate its policy initiatives and understand the impact that the Retail Distribution Review had on the market.