Financial Planning Fascinating Facts & Figures 2024 by paulharpersearch

Welcome to Financial Planning – Fascinating Facts and Figures 2024

First issued in 2019, our sixth report provides Financial Planning Business Owners and Directors with industry information you may have missed from the FCA and elsewhere. It also helps Financial Planners benchmark themselves.

Collated from various authoritative industry sources, including our headhunt salary data, the report is created to help you make informed decisions for the next 12 months and beyond.

We would also like to thank our colleagues at Panacea Adviser, who allowed us to survey their specialist readership for opinions.

FCA data shows last year was a challenging year for advice firms with a reduction in adviser numbers, profits and revenues as Consumer Duty and interest rates started to bite. Although we had further new entrants, we saw a pause in acquisitive growth for some of those who had been previously active in this area as many adviser businesses became more cautious in their acquiring and focused on integrating the firms they had already acquired.

Once again, the industry has struggled to grow the number of authorised Financial Advisers. This trend could broadly be interpreted as acquisitions facilitating the retirement of many older Financial Advisers while the industry has struggled to recruit new advisers at a pace sufficient to replace those exiting the profession.

While there may be many reasons for this, it seems evident that too many trainees are leaving too quickly. Anecdotal evidence is the inability of firms to make newly qualified advisers profitable and the large companies’ over-reliance on a self-employed model for trainees and newly qualified advisers. Many feel there are still far too many companies taking on trainees without giving them enough clients, placing weighty responsibility on these individuals to bring in new clients from the outset and, in some cases, even charging for training and leads, effectively putting debt on newly qualified Financial Planners.

For those employed in the industry, total earnings continue to rise, although there has been a small reduction in basic salaries.

With all this doom and gloom, it's nice to have some good news as well. In 2024, women Financial Planners are earning 52% more than they did only 3 years ago and, although there is very little in it, for the second year running, their total earnings are slightly more than men, so as a profession, we are on the way to closing the gender gap, and that’s something we can be proud of.

This year, we collaborated with Panacea Adviser to conduct a Job Satisfaction Survey for the first time. The results offer valuable insights, particularly in the area of work-life balance.

Looking Forward to 2025 and Beyond

So, with Adviser productivity falling and salaries rising, it is an exciting time to predict what will happen over the next 12 months. We think Consumer Duty will continue to bite as the regulator turns its focus from the largest players to the midsize and smaller players. This may expose other players who might have been less diligent in the provision of regular client reviews. It will also continue to separate those who can sell their business from those who cannot (or at least have to delay the sale to make their business more saleable or to accept a lower sale value than they might have hoped for a couple of years ago). Older Advisers will continue to exit the market.

Adviser businesses, particularly the larger ones that have borrowed to fund their growth, will fight to become more productive by using AI and other technological solutions to support less affluent clients.

The post-COVID changing of political leadership across the World will also have an impact. While it's too early to understand the implications of a Trump victory in America on the UK, the new Labour government in Britain has made an immediate impact with its tax and spending plans, aiming to tax the rich and redefining ‘working people’ to exclude business owners, pensioners and farmers.

Reduction in allowances together with rises to Employer National Insurance and Capital Gains Tax were introduced in the Autumn budget. Making pensions subject to Inheritance Tax has thrown the plans of many retired individuals and those approaching retirement into disarray. This will mean many people will urgently need to rethink their investment strategy as they draw down their pensions to reinvest in other tax wrappers.

This seems great news for the Financial Planning profession, as it can help their clients totally rethink their financial plans. We already have a profession where demand for services exceeds supply, and this gap will become only greater over the next 12 months as individuals who did not before consider themselves to be wealthy, need to seek out financial advice. Many who have previously chosen to self-manage their nest egg may now feel they need professional help.

Undoubtedly, the industry faces challenges, particularly in terms of growing the profession and addressing its current inability to do so effectively. However, these are positive challenges to tackle, especially during a period when much of the UK economy is expected to experience a reduction in demand.

If there is a boom around the corner, it may just mean there will be a race to hire experienced Financial Planners to cope with excess demand to onboard wealthy clients. That, of course, is great news for the headhunters and will drive up salaries even further for experienced Advisers.

The case for younger, less experienced Financial Planners is less clear in this scenario. We can already see that the larger academies linked to self-employed Adviser businesses are failing. This appears to be due to overselling the opportunity, providing limited support, limited client banks and demanding that newly qualified advisers should find their own clients! Sometimes they are even being charged for their leads!

It is obvious to me that far too many advisers are mis-sold the opportunity to build their own business as a self-employed Adviser, by a company not willing or not able to fund the employed model, often taking no risk and providing no actual funding.

Starting as a self-employed Financial Planner is really tough and very few succeed. This approach continues to give our profession a bad name. It worked in the past in a very different world, but it is not a good model for those advisers entering the profession today.

It would never happen in an accountancy or solicitors’ practice that the development of clients relies on the newbie in the corner! The senior partners carry that responsibility in those professions while the newly qualified lawyers learn their trade.

The career pattern for a young Adviser should allow them to nurture their skills as an adviser for several years before they are expected to be hunters. In the meantime, new advisers can prove their value by covering their costs through annual reviews and the ongoing servicing of the firm’s clients, while also seeking referrals by delivering exceptional service. Companies must adopt a more collaborative approach, ensuring multiple contact points for clients, such as advisers, paraplanners, and administrators, working seamlessly together. The senior partners and Business owners should be responsible for bringing on the big clients.

I would personally like to see larger companies create more of a career path for younger advisers who can take on smaller transactional clients as they develop their skills gradually moving up through a firm. This is the old bancassurance model and is still used by some of the private client businesses.

So, while newly qualified, young Advisers are having a tough time at present, it is clear to me that the younger generation of advisers is more inclined to progress in their exams and achieve Chartered status.

Those who follow this are building a career, and if they can survive the first five years, a Chartered Financial Planner with 5 years’ experience in giving financial advice will find themselves in high demand from competitors (and, of course, executive search firms like us).

Finally, in an era where we predict the increasing costs to Adviser businesses for Regulation, including implementing the Consumer Duty and integration, including technology upgrades, any short-term growth in demand for financial advice will be welcomed as it helps offset some of these costs.

I hope you enjoy reading our salary report and the other useful Facts and Figures we have gathered for you again this year.

As ever, we welcome your feedback.

Best Wishes

Email: paulh@paulharpersearch.co.uk

Tel: 07768 952212

The Current Landscape

While M&A continues, our M&A colleagues say much of the froth has been blown away. Prices have hardened, and due diligence has toughened. Consumer Duty, which has most visibly impacted on the biggest players, makes the buyers much more cautious. While good businesses will always find a market, it's much harder for a seller to convince buyers that they have a good business, so taking their business to market requires greater preparation.

Within the ambitious ‘buy and build’ sector of advice businesses, where the businesses have generally received outside investment to fund growth, nearly all of them have an employed adviser model. This is mainly because it ensures that the investors have legal ownership of clients, which is their preferred route. It also gives them more protection as they build the business.

We have not seen any definitive data on the exact number split between employed and self-employed advisers, but our own experience tells us that the employed adviser model has become the model of choice in recent years. We do know that the number of single adviser businesses dropped by just over 10% last year from 2,381 to 2,132. And even when there's a mix between employed and self-employed advisers, we generally see a move towards the employed model.

With the exception of M&G and St. James's Place,(two product provider-owned businesses more wedded to the self-employed model) we've seen a big move towards employed advisers in recent years, and even though the St James’s Place partner-based model relies on self-employed business owners, called partners, to run their businesses, many of these businesses are now hiring employed Financial Advisers.

Many businesses tell us the employed Financial Planner model is more efficient because the focus can then be on an adviser managing a high number of clients, usually with the support of a paraplanner and administrator. This approach has also led to a premium being placed on experience.

As the proportion of companies employing their Financial Advisers has risen, the salary data included in this report has become even more relevant.

Size of Market

There are 27,941 Financial Advisers working in 4,654 Advice firms (31 Dec 2023). This represents a decrease of 1% in the number of Financial Advisers advising on retail investments, and 8% fewer firms from December 2022.

There is a general trend of people moving from smaller businesses to bigger businesses. Adviser numbers continue to grow in the larger firms (6+ advisers) and are shrinking in the smaller firms of 5 or fewer advisers.

The 1% of Advice firms with 50 advisers or more employed 50% of the advisers in the market, up by 1% from 49% in 2022.

Revenue and Profitability

Revenue generated by intermediary firms (retail investments) in 2023 decreased by 3% to £5.34bn.

Every size of Advice firm saw a decline in average retail investment revenue per adviser. The Advice firms with 6-50 advisers saw a decrease of 6%, and those with 2-5 advisers saw a 5% decline.

Pre-tax profits tumbled across the board in 2023, with Advice firms with over 50 advisers seeing their losses increase by 325%. Firms with 6-50 advisers saw a decline of 15%, and firms with 1-5 advisers fell by 12%.

Average retained profits also saw a decline in every size of Advice firm, with the largest firms, with over 50 advisers, seeing their losses increase by 315%. Advice firms with 6-50 advisers saw the smallest decrease of 19%.

Productivity and Profitability

Despite the rise in total earnings for advisers, 2023 has shown a drop of 3.5% in fees generated per adviser from £207,302 to £200,012. Surprisingly, the productivity per adviser is lower in the larger businesses than the small ones. These figures cannot be directly compared as the fees relate to the whole adviser population, whereas the salaries only relate to employed advisers.

Fee income per adviser may not represent the full picture. For instance, some businesses generate income from other sources such as Will Writing, Protection and General Insurance, which all add to the bottom line and many of the larger businesses act as Co-Manufacturers, for Investments, enabling the company to earn another slice of the fee.

Many businesses, especially larger advice businesses, tend to provide paraplanning and admin support to ensure advisers spend more time in front of clients. Another key factor is the number of clients/ families an adviser manages, which might reflect the average client assets. A combination of developments in technology and AI with the pressures of Consumer Duty are causing companies to create innovative ways of serving clients with smaller amounts of assets under advice. Nevertheless, the trends are clear across all sizes of businesses.

Earlier this year, we produced a paper called Financial Planner: A Guide to Remuneration. In it, we highlighted various bonus models.

For most mid and large advice businesses, companies seem to have an expectation in the amount of ongoing revenue each financial adviser is responsible for. A typical benchmark threshold for the bonus schemes we see is based around experienced employed Financial Planners to generate 3x their salary (although it can vary from 2.5x to 4x), but industry data shows we aren’t there yet.

So, in simple terms, an employed Financial Planner earning a basic salary of £80,000 should be overseeing a client book generating £240,000 of ongoing revenue from 100-150 clients, and total revenue (including all fees and commissions) should be £330,000 to earn the industry average salary of just under £110,000 per annum.

Productivity and Profitability (Cont’d)

At this point, most of the Consolidators and Buy and Builds seem to have decided to trust their client banks to experienced Financial Planners rather than industry new entrants, making it very difficult for newly qualified advisers to join the very companies that have the client banks they want. However, we are starting to see advisers at these firms having a new business target as a percentage of the ongoing revenue generated by the client book they are given rather than just receiving salary based on the amount of total revenue generated. This will generate a percentage bonus for the adviser. Likewise, there is often a bonus based on business quality.

One of the strange aspects of the Financial Advice profession is the tendency of some of the traditional big players to still use a self-employed model. While the attraction of this model may be obvious to the traditional players, moving salaries from fixed overheads to variable, it has, in the past been responsible for the industry having a reputation of ‘churning and burning’ our trainees. It is also a model which doesn’t work well for most in a post-RDR world when the high initial commissions available to the previous generation of newly qualified advisers have now been replaced with a much lower ongoing fee structure, and the introduction of Consumer Duty has arguably raised the threshold on what makes a profitable client.

A recent Freedom of Information request from FT Adviser to the FCA ascertained a 17.5% drop in the number of Financial Advisers aged 25-29 and a 59% drop in those under 25 between August 2022 and February 2024. By comparison, the number of Financial Advisers over 60 actually grew in the same period.

All the recent M&A activity within our sector is now playing out. High interest rates and the consequential higher cost of borrowing are putting pressure on companies; post-merger companies are increasingly focusing on driving up profit through cost efficiencies.

Individuals who can affect the bottom line by saving costs or growing income will be in great demand.

Financial Planner Salaries

We’ve been collecting Financial Adviser salary information ever since RDR 11 years ago.

A noteworthy shift has occurred in the earnings distribution. In 2024, 52% of Financial Planners received total earnings exceeding £110,000, a significant leap from 37% in 2022.

In 2024, 42% of Financial Planners earn an average basic salary above £80,000, down from 48% in 2023.

The FCA reports around 9 months in arrears, so the FCA data used is for 2023, while our data for salaries is a little more upto-date. 2024 has been another decent year for Financial Planner earnings. Total earnings continue to rise for the sixth year. Now £109,857

This year, for the first time since we launched FF&F, we have seen a small drop in Financial Adviser basic salaries, from £79,591 to £77,786, a fall of 2%. It's difficult to be sure of the reasons for this, but it has been noticeable that many of the larger Financial Planning companies are restricting basic salaries, compared to the last few years when there was a ‘hire at all costs’ attitude.

This year, for the first time, we have removed advisers with less than 2 years’ experience from the main salary survey and categorised them separately. The average basic salary for a newly qualified Adviser is £39,417, and the average total earnings are £61,540.

Gender Diversity

For the second year in succession, women financial planners earn more than men. Specifically, women earn an average total of £115,955, while men earn an average of £107,714.

Since 2021, we have been actively analysing salary differences between men and women. Over this period, the average total earnings for women have seen a remarkable increase of 52%, rising from £76,439 to £115,955. In contrast, men's total earnings have grown by 14%, increasing from £94,806 to £107,714.

However, women's basic salaries still lag behind men's, with women earning an average basic salary of £72,738 compared to £78,738 for men. After narrowing the gap between men's and women's average basic salaries to 6% from 2022 to 2023, the gap widened again in 2024, reaching 9%.

We continue to see a high demand for women Financial Planners, and there’s no sign of that slowing down.

Staffing Trends and Hiring Plans

Despite the shortage of qualified Financial Planners, the Financial planning sector is not immune from market pressures. It has been noticeable that in recent times, there has been a significant turnover of CEOs, and in general, accountants are getting the lead positions in many of the larger Financial Services companies. That traditionally means a focus on achieving greater profitability. Usually, this will be achieved through efficiencies and cost-cutting, and there will be less emphasis on growth.

Over the last 12 months, the UK has seen a general fall in permanent vacancies and an increase in candidate availability. Within the Financial advice industry this has been very specifically at the less experienced end of the profession. While experienced financial planners remain in demand, there has been a reluctance to hire newly qualified advisers into employed roles to manage acquired banks of clients.

Candidates had a good run after COVID-19 when everybody was looking to hire, and it would be fair to say candidates could pick and choose the role they went for and negotiate their pay upwards quite significantly. It has now steadied and perhaps started a slight downward trend.

But it's not all bad news for job seekers. This means employers aim to enhance efficiency, which, in theory, can be achieved by assigning Financial Advisers larger client banks to manage, supported by cost-effective resources such as technology, paraplanners, and administrative staff to help generate and manage more revenue. However, it’s not as straightforward as it might seem.

Job Satisfaction Survey

This year, we collaborated with Panacea Adviser to conduct a Job Satisfaction Survey for the first time. The results offer valuable insights, particularly in the area of work-life balance.

When respondents were asked about their priorities in deciding whether to stay with or leave an employer, 43% identified work-life balance as "Extremely Important," and 23% cited it as the “Most Important” factor when considering a new role.

43% of individuals rate Salary and Compensation as their top consideration when considering a new role.

Regarding satisfaction with current salary and compensation packages, 46% of respondents indicated they are "Satisfied," while 3% expressed that they are "Very Satisfied."

Another notable finding is the importance of company culture. An overwhelming 82% of respondents said that company culture is "Extremely Important" when evaluating a new job opportunity, while 16% rated it as "Moderately Important" and 2% rated company culture as "Not Important.“

To see the full survey results, please refer to pages 62 – 66 of this report.

Introduction

This report is divided into four sections:

1. Fascinating Facts

2. Fascinating Figures

3. Recruitment Insights

4. About Paul Harper Search

Our facts and figures are based on FCA data and daily insights from communicating with clients and candidates.

Due to our business's specialist and complex nature, we can’t work with everyone in the market. Still, we are always happy to contribute to industry debate and share our knowledge wherever possible.