Advisers are positive they are meeting the challenges of a post-RDR world with almost three quarters of them expecting to report an increase in revenue in 2014, according to the latest report from CoreData Research.

According to CoreData’s Adviser Fees and Business Models Report, almost half (47%) of advisers expect their revenues to rise by more than 10% in 2014, a reflection of the renewed optimism in markets post-RDR.

Advisers have also rebuffed concerns about falling client numbers in a post-RDR world with almost a quarter (24%) of them expecting client numbers to rise by more than 10% in the next 12 months, while more than half (51%) of advisers expect client numbers to rise by more than 10% in the next five years.

A sixth of advisers (16.6%) cited compliance costs and time as the greatest challenge to their business in 2014 indicating there is some post-RDR pressure on their business model.

Attracting new clients (13.9%) and servicing clients (10.6%) rounded off the top three, indicating the growth in client numbers is something advisers are not expecting to fall into their lap.

Advisers have on average seen a growth in revenue since 2012, with the average adviser firm bringing in around £293,000 in 2013, up £22,000 (8.1%) since 2012.

The hourly charge for financial advice has also risen by more than £15 in the past year from £145.4 in 2013 to £161.8 in 2014. More than 70% of adviser fees are now made through upfront and ongoing fees. In contrast, trail commission now makes up only 15.9% of income (vs.26.9% in 2013) and will fall further since advisers can not receive commission from providers for recommending certain products since the end of 2012.

Angele Spiteri Paris, head of UK at CoreData Research says: “Advisers were slow to react to RDR and significant changes in their revenue streams came to fruition over a year after the regulation came into force. When we collected similar data last year, we found little had actually changed within adviser businesses a few months post-RDR implementation.

Now, over a year later the industry has witnessed a considerable leap in terms of income streams. This could suggest advisers were somewhat unsure of what changes they needed to make to ensure longevity in this new reality. “The optimism advisers display could be considered by some to be idealistic to a degree, however, as the number of high net worth individuals in the UK also continues to increase, one can put this positive outlook into a more concrete context.”

Data points

Revenues

– Almost half (47%) of advisers expect their revenues to grow by 10% or more in 2014

– Almost three-quarters (74.5%) of advisers say they will be in the same role in 3-5 years’ time. Of those changing role, 13.7% say they will leave the industry all together.

– The average financial adviser in the UK now has 240 clients, a slight increase on 228 clients in 2013.

Fees and charges

– On average, income from on-going fees has now become an adviser’s highest income channel, sitting at 37.3% of an adviser’s entire revenue. This compares to 18.1% in 2013

– This is followed closely by upfront fees (34.0% vs. 17.2% in 2013). It is evident that advisers have moved the charging structure away from commission based to more fee based revenue streams.

– Contrastingly, trail commissions now makes up only 15.9% (vs.26.9% in 2013) of income, and will fall further since advisers could not receive commission from providers for recommending certain products since the end of 2012.

– Initial commission (in some shape or form) now accounts for 12% of an adviser’s income, down markedly on 35.5% it accounted for in 2013.

– Two-thirds (66%) of advisers say they receive payments from clients through a percentage of investment.

The hourly cost of advice

– The hourly charge for giving financial advice has increased from 2013 to 2014 by more than £15, an indication of the increased revenue from fee based charges earlier discussed in the report. Advisers now typically charge an hourly rate of £161.8 (vs. £145.4 in 2013).

– The portion of advisers in the bronze category defined as charging £100 or less per hour, has fallen significantly over the last year, from 23.3% in 2013 to 17.5% in 2014.

– The portion of advisers in the silver category defined as charging £101-149 per hour, has risen slightly from 40.9% of advisers in 2013 to 45.4% in 2014. This remains the biggest segment in the market.

– The portion of advisers in the gold category defined as charging £151- 200 per hour, has seen the biggest rise in advisers in the past 12 months, from 20.3% in 2013 to 27.7% in 2014.

– The portion of advisers in the platinum category defined as charging £200 or more per hour, has risen from 11% in 2013 to 13.7% in 2014.

– When split by how income is derived, it is very visible that bronze advisers are most reliant on commission based incomes while gold and platinum are the least reliant. Silver advisers brought in the least revenue in 2013 (£173,303), followed by bronze advisers (£221,016). There is a large jump to the revenue for gold advisers (£336,387) and platinum (£387,166) revenues in 2013.

Adviser Demographics

– Advisers on average have been in the industry for 17.3 years, this number is much lower for paraplanners (8.9 years).

– Advisers have also on average seen a growth in revenue since 2012, with the average adviser firm bringing in around £293,000 pounds a year, up £22,000 or 8.1% from the 2012 revenue levels.

– The number of restricted advisers has risen from 3.7% pre-RDR to 11.7% post-RDR.

– People aged between 50 and 60 years old are the largest group (25.1%) when it comes to an adviser’s client base, a probable reflection of the demand for advice from this group.

– This is followed by those aged 65 and above (24.2%) and those aged 35-50 years old (23.9%)

– Those between 18 and 35 representing only 7.4% of all clients, the smallest demographic group who uses advisory services.

– When examining client demographics by AUM, those above 65 and past retirement age are the largest accounting for 29% of assets. Those aged 18-35 only accounted for 6.3% of client assets.