Regulatory fees and levies never fail to spark a conversation with financial planners. Both are on the up, despite the tough economic environment. But we can add one more thing that is on the up too: adviser salaries.
A recent report by recruiters Paul Harper Search and Selection reveals that there has been another year of growth for financial planner pay, with the average basic salary up 9 per cent from £58,767 to £64,111 between 2019 and 2020
The average salary has soared since 2012, when it was just £34,471. Adding on bonuses, the total salary averaged £51,619; today, it is £89,696. A quarter of advisers now earn in excess of £100,000, more than twice as many as the year before.
The latest stats add to a wealth of other evidence suggesting a near-doubling of adviser remuneration since the RDR. How long can the boom go on?
Over the past eight years, the financial advice industry has rebounded from the initial shock of the RDR. Revenues have continued to increase, and are up 36 per cent since the pension freedoms, while adviser numbers are back on the up too, rising 3 per cent last year.
While many financial advisers face headwinds from the Covid-19 pandemic, others have shown a resilient business model. Pay scales vary widely, and some firms may feel it’s time to review their packages, but there is no doubt good advisers are now rewarded well for their troubles.
Rennison Consulting owner Roderic Rennison says: “I always find statistics about pay rather interesting because you hear quite wide variations, but that £50,000 a year as an average basic salary figure is not out of line with what I am hearing.
“Typically, depending on where people are based, and if they are employed, their base is going to be something from £45,000 and can be as high as the late £80,000s or early £90,000s in London.”
However, the Paul Harper figures also show that many new advisers are being brought in lower down the pay scale. Thanks to planner academies, the recruiter argues, there has been a four-fold increase in the number of advisers earning basic salaries under £40,000 to 8 per cent of the population.
Money Marketing asked some leading advice firms about the pay structures for their new joiners and academy recruits, as well as more
experienced advisers, finding figures that line up well with the recruitment report’s findings.
Quilter said it depended upon whether a firm had an employed or self-employed model. For those that are employed, base salaries fluctuate from £20,000 to £40,000. While different firms operate different incentive structures, the firm said its top pay packets for seasoned advisers would be more than £100,000.
Tavistock Private Client managing director Mark Evans says: “We’ve got advisers in London, Portsmouth and Cambridge who start at around £75,000 to £80,000, but it is dependent on where they are in the country, as you’ve got a London weighting.
“But if we’re talking about a chartered financial planner it could be about £80,000 to £85,000 plus bonuses. Having said that, they are worth their weight in gold and the biggest problem is making sure that you’ve got the advisers to service your client base.”
St James’s Place head of academy marketing and engagement Shaun Godfrey says the firm does not monitor individuals’ remuneration because each partner runs their own business and their remuneration is down to them.
Despite extensive mergers and acquisitions activity, there are still only 11 per cent of advice firms with more than five planners. According to the FCA Register, there are 27,557 financial advisers working in 5,236 financial advice firms. Of these, Evans argues approximately 5,000, if not more, likely work for banks and never go in front of a client.
“That leaves 20,000 advisers that are client facing and, if we take into account the Mifid rules that have been brought in and I asked my advisers how many people they could look after doing proper servicing and everything else, we’re now talking about 150-200 clients.
“Basically, what has happened is that, because we have got rid of all these people, you’ve got a diminishing resource. That is the reason why advisers are going for the higher-net-worth clients, because they can only look after 150 clients.
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Supply and demand
This mismatch of supply and demand of advice is an issue that continues to rear its head, and could well be behind a large part of the
rise in adviser remuneration in recent years.
“The law of supply and demand is most definitely there,” SJP’s Godfrey says. “The population is growing and around £6trn of wealth is being transferred through generations over the next 30 years in the UK, both in terms of property and investments. Investable wealth is around £2.5trn to £3trn, and the need for financial planning will become greater.”
While the number of advisers did tick up last year, planners could soon be in shorter supply, driving up offer prices even more.
Harper’s report suggests that significant increases in professional indemnity costs, regulatory fees and Financial Services Compensation Scheme failures were already accelerating the desire for many business owners to seek an exit.
Evans echoes this while speaking to Money Marketing.
“Everybody goes on about the cost of a financial adviser, but to me it’s the cost of running the company with PI insurance, FSCS levies and everything else. They are the things pushing the cost up.”
Independent consultant Malcom Kerr says that IFAs’ biggest concern is capacity.
“My sense is that most IFAs have as many clients as they can deal with, so I think winning new clients for mature IFA businesses is not really a problem,” he says. “Their problem is having the capacity to give the right service to the existing clients.
“Many are finding it very difficult to recruit new advisers and are attempting to recruit from university or have interns, but my understanding is there is a much greater supply of paraplanners that want to come into this market than people who want to be financial advisers.”
Expert view: It’s imperative to promote financial advice as a rewarding career
Financial advisers have been in greater demand than ever in recent years, showing growing recognition among the public of the impact that receiving financial advice can have on your future wellbeing.
Before the RDR, financial advisers were remunerated differently, and often via commission with a lower base salary and incentive to earn higher on a target earnings expectation. Post-RDR, financial advisers have offered more holistic financial planning propositions with higher service levels for which they charge fees.
Amid the current crisis, financial advice is more important than ever. The sad fact of 2020 is there are too few financial advisers able to serve the growing number of people who would benefit from financial advice. The first Financial Advice Market Review found the level of Financial Services Compensation Scheme funding for advice firms, the unpredictable nature of this funding, plus a lack of availability of professional indemnity insurance were restricting consumer access to advice.
We want to see long-term reform of the FSCS levy and the PI insurance market, and we have proposed a workable alternative for funding consumer protection.
We are keen to promote financial advice as a rewarding career, where you can help individuals achieve their life goals. We will continue to work with financial advice firms and academies to help them develop the next generation of financial advisers’ technical knowledge through the qualification framework and continuous professional development.
We support apprenticeships, which is why we launched the PFS Aspire initiative that involves a structured training programme lasting 18 months.
In the first week after launching PFS Aspire, more than 300 advice firms signed up, demonstrating both the demand for professional financial planning and the focus on succession planning.
Apprenticeships are a great way to attract new talent to the profession at a time when many are being made unemployed in other professions and may be wondering what career they should embark on next.
We will continue to engage with government to improve access to funding for financial advice firms of all sizes and so that people can re-skill to join our much-needed profession.
Keith Richards is chief executive of the Personal Finance Society
Despite the advice gap and shortage of good financial advisers, many also argue that it is impossible for a newly qualified financial adviser to build a client bank from scratch, something made easier by the ability to charge commissions in the past.
But MFP Wealth Management chartered financial planner Justin King argues that advisers need to know how to build their own network of clients.
“I have reflected on the challenges of building a client base in 2020 and I appreciate the difficulties. The inability to meet with people face to face creates a lot of challenges when expanding your network.”
Harper believes that another one of the hardships for an adviser is taking a client bank from one employer to another.
The shortage in the supply of advisers could become acute. Harper’s report reveals that 62 per cent of financial planners plan to retire in the next 10 years, and 60 per cent also turned away clients in the past 12 months.
“People have got to find out how to use their advisers more cleverly. A lot of them are going to be retiring, so that is going to be an issue about what we do for the next generation,” he says.
“Everyone knows there is a shortage of advisers, so there is definitely a need to train our own. Even a young or newly qualified adviser is going to earn quite well if they get an employed role, but as an employer you have to make sure you’ve got enough income coming in to sustain that for the newly qualified adviser.”
SJP defers Academy entrants due to Covid-19
Opportunity to recruit
Likewise, Godfrey says that, without firms taking action to do something positive, the industry will see more and more of the existing population of financial advisers move towards retirement.
“It is going to get worse,” he says. “Some will say it is a good worse, as if you are still there then you can start demanding better pay and rations because you have become a scarce commodity.
“But we see it as a brilliant opportunity to bring people into the profession over the next 25 to 30 years, because the backdrop is that more and more people are looking for financial advice, and as an industry we’re in a really good space to be able to grow the profession.
“The difficulty is making the profession look attractive and interesting to people,” says Godfrey.
Given the clear shortage of advisers and the profession’s great earning potential, why does it still not look attractive enough to draw in more new blood?
Many argue that increasing regulation is acting as a deterrent for advisers who are becoming more aware of the paperwork they would have to do if they entered the profession.
King says: “There is a regulatory moat around the financial planning world. PI, FSCS, regulatory fees and qualifications throw a disruptor into the financial planning world’s huge challenges.
“While this barrier to entry is high, the service will continue to be a premium service.”
However, Kerr argues that the shortage of advisers is down to the fact that it is not an easy job and requires a “unique combination” of skills.
He explains: “On the one hand, advisers are able to build relationships, network and tell stories that help clients understand what their options are so they can build strong relationships and have a great deal of empathy. Now that in itself is not unique.
“What is unique is that, on the other side of their brain, they must be sufficiently analytical, numerate and attentive to detail, focusing on entirely logical spreadsheets that they bring to life with the other side of their brain. These people are not in great supply.
“It’s not an easy thing to do. And experience is important, so for people without experience it’s quite difficult to get into this world. Hence the shortage of people joining it.”
Martin Bamford, client education director, Informed Choice
Economic theory tells us that, in a market with declining supply and rising demand, prices will go up. It is not surprising to see the average salaries for financial planners rise against a backdrop of more retiring advisers and a growing number of prospective clients.
The work that a financial planner does is incredibly valuable and the role deserves to be rewarded. Of course, employed financial planners need to justify their salaries, generating fees equivalent to at least three times their salary to be considered profitable for their employers.
Salaries will continue to rise if financial planners take responsibility for higher levels of fee income. The next 10-15 years looks set to continue the trend of rising client demand for quality financial planning, with a significant intergenerational wealth transfer taking place, with complex financial planning needs driving demand for advice.
Any financial planner who is disappointed not to receive client leads should take the initiative and generate their own enquiries. Alongside technical ability, a new financial planner needs to develop a range of skills, including being self-sufficient when it comes to lead generation. Employed financial planners are far more valuable when they can engage new clients, without being spoon-fed by marketing departments.
Tackling the advice gap is a perennial issue. Recruiting more financial planners will require a concerted effort on behalf of the profession and its professional bodies to make the career sufficiently attractive to both graduates and second-career candidates.
Passing the parcel
Some larger vertically integrated advice firms have started allocating larger client books than they have in the past to each financial planner in order to drive efficiency and profitability by encouraging their most experienced advisers to focus on fewer, larger clients, according to Harper.
“This enables them to generate more client revenue, thus making the company more profitable while, of course, justifying a higher salary package for the financial planner,” he says.
Quilter Private Client Advisers head Andy Moore says: “We are starting to see clear segmentation in the advice market as firms focus on specific parts of the wealth market. For some firms they will focus on the higher net worth, who generally have more complex needs and other firms will focus on mass affluent clients who very much need advice but are often more straightforward.
“Originally, we looked to serve the majority of those who required financial advice. However, through acquisitions and organic development, our advice proposition has become more focused on higher-net-worth clients. As a result, the average assets per adviser have increased, while the number of advisers per client has remained as originally projected.”
Firms with over 50 advisers tend to make less revenue per adviser — £160,000 — compared to smaller firms — £190,000 — but revenue across the board dipped slightly in 2019, begging the question as to whether we’ve finally reached the end of the road for salary hikes.
Kerr believes earnings will continue to increase.
“Markets set salaries,” he says. “A premier division football player earns £500,000 a week. Is that too much or too little?
“The bottom line is that it is a market. At the moment, the demand for financial advisers exceeds the supply and that is fact. Therefore, why wouldn’t you expect their incomes to be going up not down?”
On top of high salaries, many nationals have productivity and revenue targets for financial advisers.
For firms within Quilter Financial Planning’s network that have been hired from its financial adviser school, the majority have some form of quality or productivity target.
Schroders Personal Wealth says it uses a “balanced scorecard” because it believes this approach “supports the personal development of our advisers and the business’ ability to provide exceptional client service”.
Tavistock advisers receive a bonus for every exam passed and move up grades within the firm.
Rennison says: “Whether they say they do or do not, most firms have productivity targets. There are some that are still purely quantitative, but there are many now that measure using other metrics: file quality, complaints and adhering to systems and controls.”
Harper adds: “Most of the consolidators, private client businesses or wealth managers will be incentivising people to grow their book. Not in a bad way — they are just making sure people are most productive.”
Will future stars be attracted to this kind of culture? While there has definitely been an increase in new adviser academies as the industry looks to close the advice gap, approximately 67 per cent of financial planners experience difficulties finding talent, according to the Harper report.
With chancellor Rishi Sunak’s recent announcement of £3bn to deliver a new three-year ‘restart programme’ for jobs, it could present an opportunity for advice firms to try and attract new talent.
Some of the firms that currently run academies include Quilter, SJP and Schroders Personal Wealth, each with different financial incentives. Tavistock also runs an apprenticeship scheme
SJP advertises its academy as a two-year career change programme where everything is funded by the academy, such as the examinations and training, so there is no cost to the individual who will be paid an ‘educational grant’ by SJP of £1,000 a month for six months.
Schroders had its first intake of 20 academy trainee advisers on 7 September. It offers a salary of £35,000 with an 18-month training programme as a trainee adviser.
Tavistock takes on one apprentice every year, who joins as an administrator, working with advisers to learn how the firm operates. The firm pays for the apprentices to take their CII exams and helps them in their journey from an administrator at the age of 16 to an adviser in around five years.
Money Marketing understands that most of these firms buy client banks for those coming out of the academy. However, Harper says his team often receives feedback that financial adviser academies have not been a universal success, as many of the newly qualified financial planners have been disappointed not to inherit sufficient clients to make their efforts worthwhile.
This is just one more reason young planners may help push salaries up even further.
As Kerr says: “IFAs are a business just like the private doctor or dentist; they are not a charity.”