The Financial Conduct Authority (FCA) has logged a 25% rise in pre-tax profits to £872m ($1.1bn), €983m) in 2018 for all reporting financial adviser firms, up from £698m in 2017.
Overall, 96% of firms were profitable, but pre-tax profit as a proportion of revenue declined with the size of the firm – meaning bigger firms are struggling to grow their profit margins.
Some 73% of firms with over 50 advisers reported a profit, but across these firms there was an aggregate drop of £18m due to significant losses reported by a few businesses.
Table 1: Financial adviser firms – pre–tax profits (2018)
| Category | % of firms making a profit | Average profit as % of revenue |
| 1 adviser | 97% | 43% |
| 2-5 advisers | 97% | 35% |
| 6-50 advisers | 96% | 19% |
| Over 50 advisers | 73% | -0.8% |
Source: FCA
Commission and fees
Revenue earned from retail investment commission continued to decline, as £755m was made in 2018 from £804m in 2017.
Revenue from fees, however, rose to £3.5bn from just over £3bn a year before.
Total revenue for all 5,131 retail investment firms reporting was around £4.4bn in 2018, a rise from £3.95bn in 2017 (5,048 firms assessed).
Table 2: Total revenue earned from retail investment business
| Category | Commission (Net) | Fees/charges | Other revenue | Total Revenue | Number of firms |
| 2014 | £1,067,371,014 | £1,566,079,023 | £156,473,932 | £2,789,923,969 | 4,725 |
| 2015 | £943,829,047 | £1,951,538,857 | £132,559,259 | £3,027,927,163 | 4,864 |
| 2016 | £843,861,392 | £2,302,566,275 | £109,287,426 | £3,255,715,093 | 4,970 |
| 2017 | £804,604,429 | £3,022,515,996 | £126,932,227 | £3,954,052,652 | 5,048 |
| 2018 | £755,529,446 | £3,526,171,821 | £135,879,437 | £4,417,580,704 | 5,131 |
Source: FCA
Professional indemnity insurance
In March 2019, the FCA announced an increase in the Financial Ombudsman Service’s award limit to £350,000 from £150,000.
The increase is applicable to complaints referred to the FOS from 1 April 2019.
In 2018, financial adviser firms generally paid a lower premium the larger the firm.
The exception being those in the £501,000 to £10m revenue band where the average premium as a percentage of revenue was higher than the band below.
Compared with 2017, the total spent on PII premiums increased by 16% to £94.4m from £81.7m in 2017.
The FCA said this largely reflects the growth in revenue earned by these firms.
Table 3: PII premiums paid by financial adviser firms (2018)
| Revenue band | Total annualised PII premium | Average PII premium per firm | Average regulated revenue per firm | PII premium as % of regulated revenue |
| Up to £100k revenue | £2,219,827 | £2,347 | £58,493 | 4.0% |
| £101k to £500k revenue | £12,779,732 | £5,528 | £251,748 | 2.2% |
| £501k to £10m revenue | £53,639,576 | £38,617 | £1,346,492 | 2.9% |
| Over £10m revenue | £25,807,800 | £860,260 | £74,428,551 | 1.2% |
| All firms | £94,446,935 | £20,194 | £1,013,579 | 2.0% |
Source: FCA
Insurance broker PII
The average PII premium paid by insurance brokers was just over 1% of average regulated revenue.
Within this there is significant variation by size of firm with the smallest firms paying a much higher percentage of revenue than the largest firms.
The FCA said apart from the largest firms, premiums fell slightly as a proportion of revenue compared to 2017.
Table 4: PII premiums paid by insurance intermediary firm
| Revenue band | Total annualised PII premium | Average PII premium per firm | Average regulated revenue per firm | PII premium as % of regulated revenue |
| Up to £100k revenue | £2,440,316 | £2,056 | £42,293 | 4.9% |
| £101k to £500k revenue | £8,047,710 | £5,569 | £251,397 | 2.2% |
| £501k to £10m revenue | £92,794,257 | £63,776 | £2,140,228 | 3.0% |
| Over £10m revenue | £109,465,232 | £533,977 | £63,124,451 | 0.8% |
| All firms | £212,747,515 | £49,568 | £3,836,909 | 1.3% |
Source: FCA
Services
For one-off advice services, the number of clients seeking independent advice increased 38% by 660,704 from 2017, while restricted advice has declined by 15% to 622,425.
The number of new clients has decreased by 1.2% compared to 2017 to 501,012, as the number of clients ending their relationship with their adviser increased 21% to 157,669.
