The FCA Data Bulletin found that intermediary firms collectively paid in excess of £300m ($402m, €342m) for PII in 2017.
The burden is greater for smaller firms with up to £100k in revenue, which pay 4.2% of their regulated revenue for cover. This compares to 1.2% for firms with over £10m in revenue.
Heather Hopkins, analyst with NextWealth, said: “It will come as no surprise that NextWealth research suggests that financial adviser say PII premiums are on the rise.
“We’re still waiting for the results to come in but most firms that have renewed their PII in 2018 have seen premiums go up (so far only one quarter haven’t seen premiums rise). About one third of firms are telling us that premiums have gone up by between 10% and 25%.
“Some people think that the current furore over PII cover is pushing small firms into networks. It’s too early to tell what the consequences will be. But in the short run, most advisers tell us they are increasing fees for some services as they need to pass on the extra costs to clients.”
Revenue up
The FCA report published on Thursday also looks at types of firms, adviser charges and revenue.
Revenue earned from retail investment and home finance activities showed particular strength, up by 21% and 26% respectively from 2016 to 2017 analysts found.
Growth in revenue from non-investment insurance mediation was more modest – up 8% on 2016.
Revenue generated across business activities has grown at a faster rate than the increase in the number of firms, indicating that the average revenue earned per firm has therefore increased.
Total reported earnings by financial advisers increased by 22% to £4.5bn in 2017 and aggregate pre-tax profits by 23% to £698m.
The growth in profits has been driven by the growth in headline revenue. Small firms have the highest pre-tax profit margin at 43% of total revenue.
Small firms
There is a large number of small firms – 89% of firms have five advisers or fewer – but the large firms account for a high proportion of all advice staff. Firms with over 50 adviser staff (less than 1% of the total number of firms) account for 44% of all advisers.
The reported number of adviser staff at financial adviser firms is 26,311 which represents an increase of 700 (3%) on 2016.
Most of the increase has been accounted for by larger firms, while the number working at smaller firms (those with up to five advisers) has remained about the same.
Adviser charges
Both ongoing investment charges and facilitated charges increased for the third year in a row.
Facilitated payments, where a client agrees to allow a product or platform to pay the adviser’s fee from the investment, made up 83% of adviser charge revenues, up from 79% last year.
Total adviser charges increased by 27% to £4.65bn in 2017 from £3.68bn in 2016.
Most of the increase was from ongoing charges, which grew by 28% to £2.82bn in 2017 from £2.2bn the previous year.
Revenue from initial charges grew by 24% over the same period to £1.83bn in 2017 from £1.48bn in 2016.
