If you’ve wondered how financial advisers make their money, the Financial Conduct Authority has recently revealed this information.
Facilitated Payments
According to the Financial Conduct Authority, most financial advisers get paid for the work that they do by what is known as facilitated payments, or adviser charging. This is where the provider of the product or platform pays the adviser by deducting the charge from a client’s investment and paying it to them. In fact, an incredible 81% of initial charges are paid this way, as are 78% of ongoing fees. Other charges are paid by the client, to the adviser.
Popularity of Percentage Charges
It appears that many financial advisers prefer to use percentage charging for initial and ongoing fees, with 4,000 firms opting for this payment structure. On average, initial advice is charged between 1-3%, while this drops to between 0.5-1% for ongoing fees.
Other Fees
Less common than percentage charges are advisers who charge by the hour. The Financial Conduct Authority estimates that 1,663 firms request payment by the hour for initial charges, and just 1,259 businesses use this fee structure for ongoing charges.
Some financial advisers charge fixed fees, accounting for 1,971 firms who fixed a rate for initial charges and 1,215 for ongoing fees.
Advice
Statistics revealed by the Financial Conduct Authority highlight that the majority of advisers, some 83%, offer independent advice. 15% of advisers provide restricted advice. According to the Money Advice Service, restricted advisers might either be restricted in the types of products they offer or the numbers of providers they choose from. Although there tends to be fewer restricted advisers, they are often larger firms.
Different Types of Firms
Back office systems for financial advisers, such as those offered by https://www.intelliflo.com/, are integral to assisting in the provision of advice and information, but it seems when it comes to the type of advice been offered by a firm, this often reflects the different charge structures they use.
Independent advisers favour facilitated payments for ongoing fees compared to restricted advisers, whereas restricted advisers seem to prefer using facilitated payments for initial charges in comparison to independent advisers.
Revenues
When it comes to generating income, financial advisers earn £3.7bn in revenue, compared to mortgage brokers who rake in £1bn. Non-investment insurance intermediaries are the top performers, earning £15.1bn in revenue.