The results of the flagship annual research by recruitment consultancy BWD and Money Marketing are in, showing yet another year of growth for financial planner pay packets and optimism for the months ahead.
Over 2018, the average total earnings for employed financial advisers were £99,701, up 7 per cent from £93,115 the year before. Self-employed advisers, meanwhile, have seen total pay packets increase from £89,152 to £98,472 – an increase of 10 per cent.
A third of advisers are now earning over £100,000, the research shows.
Across all the advisers, around £70,000 of the total pay came in salary, with £30,000 coming through bonuses. Of the bonuses, 60 per cent were decided on a discretionary basis, with a quarter of advisers saying their performance pay was defined through hitting targets. Key performance indicator-based incentives “seem to be going out of favour”, BWD notes.
Independent advisers tended to earn marginally more than their restricted peers, while chartered advisers still have a slight earnings premium on their level 4 qualified peers too.
The number of chartered and level 4 qualified advisers taking part in the research has hit parity; 43 per cent fell into each camp. A further 14 per cent said they expected to become chartered in the next two years in a continued sign that advisers are stepping up and looking at the highest levels of qualification.
“Unless there is a material increase in new advisers coming in at ‘entry level’ level 4 then it looks like chartered is the new benchmark,” BWD says. “Older advisers or those approaching retirement may of course elect not to seek chartered status – otherwise we see most advisers taking this step.”
Financial advisers earned more than business development managers, compliance professionals, employee benefits consultants and administrators that took part in the study – a fact that has not always been the case in the seven years the research has been running.
But advisers were also the most optimistic of those groups when it comes to expectations of future earnings increases, with 55 per cent believing their pay packets will increase. This contrasts with a quarter of BDMs thinking their pay will fall.
The results show yet another year of growth for financial planner pay packets and optimism for the months ahead
BWD says the pessimism among BDMs could potentially be the result of more competition, advisers moving to new products, or how bonuses and targets have been restructured, while the growth in the retirement market has been a positive boon for advisers’ optimism.
The data suggests that just 12 per cent of financial advisers are female – in line with FCA Register and other diversity data on the profession. However, this ratio jumps to 46 per cent for the paraplanners.
There has also been an upward trend in paraplanners’ pay. The average earnings for the group passed £40,000 in 2018, and are now up more than 30 per cent since a level of £29,700 was recorded back in 2013.
“Once seen as just a stepping stone to becoming an adviser, many now remain, carving out a successful career and become a commodity,” BWD says.
Another positive is the stability in the average age of advisers, holding steady at 46, and of paraplanners, increasing by just one year to 39.
“Adviser numbers have continued to increase, which in turn have pushed up the employment figures of support staff, ensuring the advice sector has remained buoyant,” BWD also notes.
However, just 4 per cent of advisers in the sample were under 30, suggesting there is still some way to go in attracting fresh blood to the profession. Of the advisers, 71 per cent offered independent advice. This has fluctuated over the last six years, but there is no evidence of a clear downward trend as yet.
Of the 874 respondents to the survey, 43 per cent worked for advice firms, 31 per cent for investment providers, 7 per cent for life companies, and 5 per cent for platforms.
More than a third of all respondents were financial planners, meaning some 300 took part in the research, and 14 per cent were paraplanners, with individuals represented from across all regions in the UK.
Just over half of respondents fell into firms of between 11 and 20 staff, suggesting a significant number of small and medium-sized advice firms were included – a fair representation of the market as a whole.
So what can we glean from the results about the future of the advice profession in general, and will we continue to witness such optimism and wage inflation?
Adviser numbers have continued to increase, which in turn have pushed up the employment figures of support staff, ensuring the advice sector has remained buoyant
Peaks and troughs
With so much talk of increasing regulatory and professional indemnity insurance bills at the moment, it can be easy to forget that there have been a whole host of tailwinds for advisers in recent years too.
On the income side of the equation, defined benefit transfers have grabbed the headlines for freeing up cash that ends up with advisers, but the pension freedoms more generally have done wonders for moving financial planning up the agenda, leading to a significant jump in demand.
Skyrocketing house prices have also left babyboomers sitting on more wealth than ever before.
While advisers may abhor the government’s constant tinkering with taxation, it means those wealthy individuals are feeling the pressure to seek their services more than ever before. Uncertainty in both the geopolitical and macroeconomic landscape has proved a powerful source of enquiries for clients looking for someone to help them make sense of it all.
Increasing life expectancy may be financially tough for people without significant assets, but it again drives people to financial planning and, while percentage-based charges continue to dominate – the latest FCA statistics show these are still used by 70 per cent of advisers – managing assets for longer into retirement can only lead to increased fee revenue.
While we may be near the end of the equity bull run, the fact that the majority of advisers still charge on a percentage basis results in a clear correlation between market gains and the fees they have generated in recent years too.
In an increasingly challenging post-retirement world, and with regulations like Mifid II now in full force, there is far more justification to bolster ongoing advice services – and charge an appropriate fee. Money Marketing revealed the results of an FCA study last year that showed 34 of 37 advice firms increased ongoing charges for at least one ongoing service type in the preceding two years, compared to just two that cut fees.
Sales-linked bonuses may be dwindling due to a post-RDR separation of church and state that has moved advice beyond investment commissions; the idea that planning is a separate science from fund selection and that it should be remunerated as such. But that presents a brand-new opportunity in itself for advisers to make money from services like coaching and life planning for which they have previously found it far harder to charge. As opposed to selling a transaction, a quick-fire decision on where you should invest your money, when advisers start pitching themselves as the professional service they have become, it puts clients more at ease with paying fees that are in line with other professional services like accountants and solicitors – fees they are used to from elsewhere in their lives and already comfortable with paying.
When it comes to the impact of costs, which can obviously cut into salaries, we are seeing price wars across both platforms and passive investment solutions. While business costs – including salaries – have gone up, the cost of much of the technology involved in delivering advice has come down.
As advice firms’ revenue continues to increase and consolidation starts to drive even greater scale in the market – the average number of advising staff per firm climbed from 4.62 to 4.77 in 2017, according to trade body Pimfa’s latest stats –discount deals can be negotiated on all of the above.
Money Marketing understands that the average productivity for advisers at leading networks including Quilter Financial Planning and Tenet remains well in excess of £100,000. With many larger networks and nationals starting to run centralised investment propositions at scale, this can only bode well for the margins the average adviser is able to make.
For those outsourcing, the rise of lower-cost discretionary solutions can – in theory at least – lead to savings on adviser man-hours and research costs, which translates into healthier profitability and hence better pay packets for staff too.
For BDMs and others at the coalface of active management, platforms or back-office provision, times do feel tougher. They may well be feeling the heat as value-for-money discussions filter through to margin compression. But that is not the experience of the typical adviser; the supply dynamics of the profession mean increased competition just hasn’t had the same effect on them. The FCA is yet to review how price competition operates in the intermediary space, having assessed both platforms and investment management over the past two years.
Reaching the nadir
With several years of successive growth, this now begs the question as to how long adviser salaries can continue improving. There is certainly the possibility that markets could tank in the face of trade wars and a no-deal Brexit on the horizon. But will clients ever come to challenge how much their financial planner is getting paid?
There is little evidence to suggest this move is coming any time soon. We hear so often from advisers how rarely customers contest charges once they start receiving advice. These fees flow directly into salaries, so why should the situation in regard to advisers’ take-home pay be any different? While academies and training programmes are being promulgated across the land, the rate of recruitment is hardly likely to boost supply to such an extent that it puts noticeable downward pressure on advice fees, given how much demand is currently outstripping what the planning market is willing and able to offer in terms of supply.
With the move to life planning comes a stickier client base, who are better informed not to ditch their adviser the second the market turns, and are in it for the long-term plan, not just shoot-the-lights-out investment returns.
The only limit on fees and therefore salary levels appears to be capacity; there are only so many clients an adviser can take on if they want to continue offering the holistic financial planning service that justifies their privileged income.
Spreading the message
To its credit, the Personal Finance Society – and to a lesser extent the Chartered Institute for Securities & Investment since it subsumed the Institute of Financial Planning – has made a far more conscious effort to promote the value of advice in recent years to the wider public.
Other organisations outside of the main adviser trade bodies have helped bang the drum as well – guidance bodies like the Money Advice Service set up referral programmes with regulated advisers, and pro-bono initiatives like operation CHIVE have caught the public eye for coming to the aid of British Steel workers – not to mention media pressure through series run by the likes of Money Marketing, including our upcoming Advice From The Client’s Perspective project.
And what about the future of para-planner pay? Again, the signs look good as discussions continue over the further professionalisation and standardisation of the role. The BWD study suggests paraplanners are moving up in the world when it comes to qualification levels, with 14 per cent looking to become chartered over the next two years, and 18 per cent already meeting that threshold.
Lime Outsourced Paraplanning director Rebecca Lucas believes a hybrid paraplanner role might emerge, where higher salaries will be justified as more paraplanners move towards client-facing and relationship management roles, rather than just acting as administrators.
“In business, the people who are directly bringing in the money tend to be rewarded more than the people who make the cogs turn,” she says. “Yes, when the adviser is self-employed, they are taking on more risk, but it’s good to see paraplanners moving in the right direction, looking more at a relationship job than a desk-based one.
“There’s a lot going on in terms of experience and qualifications, but it’s also about supply and demand. A lot of advisers tell me they want an in-house paraplanner, but can’t get the high calibre they are looking for. When people find that perfect paraplanner they are in short supply, so they’ve got to put the salaries up.”
Tracey Evans, associate director, Progeny Wealth
You’ve got fewer advisers in the marketplace, and whenever there’s a perceived scarcity it pushes costs up, and that means bigger salaries. Advisers have sharpened their pencils and got better qualified so they can command salaries similar to other professions.
The days where clients were just looking for someone to invest their money are long gone. A lot of the skill is around goals and objectives, allowing clients to live the life they want to live. That is the service we deliver that seems to work the best for our clients; some are interested in the minutiae of money, but many just want to know if they have enough to do what they want to do.
That’s a skill in itself, and advisers that get that can obviously command high salaries. It is a holistic service, looking at the whole of the client’s circumstances, making sure it all fits around their goals. Investment is important, yes, but we don’t put it at the centre of everything we do. Traditional advisers would have done so, but when markets wobble, they get challenges from unhappy clients.
The difference is that good independent financial advisers today are educators; they know it’s not just about returns, but about knowledge, behavioural finance and all the rest. Good advisers have the skills to do that, not just the investment piece. They have other things in their tool kit; they are very qualified, very respected and can communicate with clients, so they should get paid for that.
Keith Churchouse, director, Chapters Financial
I’m not surprised at the increases in pay. They’re a result of the push for professionalism within our trade over the last decade, and that has duly seen an increase in income for advisers. Demand is not ebbing away at all, and I can’t see anything changing for the next three or four years. Thereafter we might start to see consolidation, and the push of the consolidators starting to define how advisers are paid.
I also think that as we move into a post-Brexit world, whatever that may look like, we will find demand continues to accelerate. Whatever is happening is creating fear, and because of that fear, people want to seek reassurance, advice and guidance on what they should be doing with their money to make sure they’re ready for any post-Brexit world. That will continue for several years as people settle into that political world.
Business is very buoyant at the moment, and it’s been good throughout the year. I’ve just had my best month in about 15 years. If that lines up with the views others have had that financial planning is on the ascendancy, then we are doing very well.
The big bucks need to be spread around your firm
We did a management buyout last year, and I wanted to create a structure that rewards everyone. Effectively all the staff are shareholders; I don’t think rewarding big rainmakers is a healthy culture. For example, if a new client has given over £1m and you reward just one person for that piece of work everyone else’s role is diminished.
A big problem in the industry is that there are 30,000 financial advisers, and we are struggling to find good-quality people. When we interview we find they fall over all the time. I just fail to find the key qualities I’m after – the passion and the intelligence.
The challenge for me is I can’t find chartered advisers for less than £100,000 that are any good, but I won’t pay that, so we are hiring more graduates, and we put them on a training programme hoping that one or two become budding planners.
A chartered financial planner can command six figures; the good ones can get £100,000 basic. But to pay someone that amount, they have got to bring in, say, £10m in assets and £300,000 in adviser charges. That’s a pretty tall order and they have got to be a really great networker.
The gene pool is incredibly small, and the general complexity now means independent financial advisers are at a premium, but only around 20 per cent of financial advisers are worth getting out of bed for.
If you keep rewarding the big guys, then you can’t create pools for great talent. Our investment and operations teams get an equity stake, which is tied into the services delivered to the client. I think we have to move away from eat what you kill. We measure things like how quickly the adviser responds, or how quickly the operations team follow up on a task, or clean compliance. The key performance indicators are there, but they are around delivery.
We did have a company target for revenue and profit, but if we don’t reach that no one wins. There’s no room for egos here. More and more businesses are going that way I think, and asking what the client wants. I’m expecting everyone to contribute on corporate social responsibility as well.
It’s great that financial planners can get a good salary. It’s great that good financial planners are on £150,000 to £200,000 – I think they should be – but you’ve got to put in the work to get there, and it’s about pulling together as a team.
Petronella West is chief executive of Investment Quorum