The latest Retail Mediation Activities Return (RMAR) data published by the Financial Conduct Authority at the end of last week demonstrates the dangers of growth for the sake of growth, according to national IFA partnership Continuum.
The financial advice market continues to narrow as the number of firms with over 50 advisers rose by a further 9% to 51 firms in 2022.
The number of financial advice firms in total also continued to fall as consolidation within the market continues to narrow the number of small firms. The number of firms fell to 5,062 (2021: 5,118), with a 2% fall in firms with just one adviser to 2,381, and a 1% fall to 2,093 in the number of firms with between 2 and 5 advisers.
However, firms over 50 advisers also have a lower average revenue per adviser and are the only sector which has reported an average pre-tax loss.
Chart: Financial adviser firms – average revenue/profit
| Number of firms | Average retail investment revenue per adviser (£) | Average total revenue per firm (£) | Average pre-tax profit per firm (£) | Number of firms making pre-tax profit | |
| 1 adviser | 2,355 | 186,060 | 233,030 | 101.415 | 2,246 |
| 2-5 advisers | 2,030 | 223,517 | 740,417 | 240,190 | 1,912 |
| 6-50 advisers | 488 | 229,626 | 3,154,191 | 629,597 | 451 |
| Over 50 advisers | 43 | 190,005 | 70,339,581 | -753,225 | 31 |
Source: FCA Retail Intermediary Market 2022
The data in the table is based on only those firms that submitted a full year of revenue on section B, which is a smaller population of firms.
The fact that the 31 of the 43 firms with over 50 advisers who submitted a full year of revenue for the RMAR made a pre-tax profit, means that for the overall average to show a significant pre-tax loss of £753,225, the remaining 12 firms must have made significant losses.
Martin Brown, Managing Partner at Continuum, said this should be taken as a cautionary tale for advice firms who are looking to grow quickly through acquisition.
He said: “New consolidators entering the market are investing a lot of money in acquisitions. One potential issue with this approach is are they culturally aligned, and is there sufficient support in place?
“Cultural alignment throughout financial advice firms is very important, and a strong support structure is essential, in order to maintain a focus on client outcomes. Consumer Duty also pulls these into focus. There is a real challenge as businesses grow through consolidation to ensure cultural integration and strong support services are in place.
“At Continuum we have one common brand, with a strong cultural identity, which supports our long-term affinity partnerships. Through our unique three-way partnership all our adviser partners are provided with full support for their business and their clients. We are not just building a business for today, but through our MyContinuum Succession Programme, we are building a legacy of advice that will last for generations to come.
“Our focus on organic growth means that we are not forsaking quality for the sake of growth. Our organic approach ensures we determine our revenue growth. Continuum’s revenue grew 12% in 2022, four times the 3% average reported by the market. Our assets under influence rose 7% and we saw an 11% increase in adviser numbers to 63. Profitability for both the firm and our adviser partners also continues to rise. We are maintaining growth well above the curve through pure natural organic growth.”
The latest data from the FCA also showed that the number of independent advice firms held steady at 4,729 (2021: 4,727).
Mr Brown added: “Independent advice continues to be the way forward for advisers looking to provide the best service. However, maintaining independence is becoming difficult for some smaller firms facing spiraling costs.
“The costs of running an advice business continue to rise and we have seen a marked increase in the number of high-quality advisers approaching Continuum over the past year looking to join our partnership to help them with both the financial and time constraints caused by the effects of increased regulation in recent years.”
