Advisor's Profit Margin?

Twointhebush

I've been asking a bit about my Advisor's charges. Now I'm wondering what % of the charge he actually earns after costs?

dunstonh

If its an FA like SJP, then costs are low and profit is high as its more like a commission model. If its an IFA then it depends on the business model and type of firm. City locations cost more than rural locations. Is it a shop front business needing constant manning or a home office etc.

Broadly speaking, around a third of the income will go on regulatory costs and compliance with regulations
Virtually all IFA research software and analysis tools are monthly cost. There is usually economies of scale with licences. So, a single adviser will usually pay more pro-rata than a firm of say 5 advisers. A single adviser could be paying £10k a year in software/ licences.

As adviser firms grow, there becomes a sweet spot before you need to employ someone. At that sweet spot you will be more profitable but when you employ someone you suddenly have that extra £20k-£30k a year salary (and their licences and access to software and their compliance costs etc) to pay for.

If the IFA is an employee or attached to a firm (i.e. not the firm owner/directors) then they normally only get a cut of the fee income. An accountant near us pays the advisers around a third of their fee income but covers the costs. Another one pays 70% of the fee income of the stuff that the adviser brings in themselves but only 30% of the income from clients that walk in/phone in via the shop front.

Spreadsheetman

Interesting @dunstonh. I have been using the same IFA for quite a few years. He started as a 1-man band, but he found that wasn't sustainable with the regulatory / compliance / research costs so eventually became a partner in a practice that is part of an accountancy firm.


That gave him time to concentrate on clients while having all the back-end to make it practical and allow a profit to be made!

CBX1985

@dunstonh

Not all Financial Advisers are on SJP rates. Friends who work there tell me that unless you are a partner you are on starvation rates. Not for me.

I work for the largest Intrinsic AR. We have the same charging model as most IFAs -. i.e normal fees - I usually charge 3% tops. I get 50% (plus a small annual bonus) of the first £100k I bill, and then 80% thereafter. I'd be better with a local IFA, but have had bad experiences in the past so rather work for national firms.

dunstonh

I work for the largest Intrinsic AR. We have the same charging model as most IFAs -. i.e normal fees - I usually charge 3% tops. I get 50% (plus a small annual bonus) of the first £100k I bill, and then 80% thereafter. I'd be better with a local IFA, but have had bad experiences in the past so rather work for national firms.

I was under the impression that intrinsic would offer you lower costs if you went more restricted to their offerings. However, you were free to set your own fee structure.

I could never go back to a network model but I do know some prefer it.