Boom time: Why adviser pay packets are soaring (Long read)
By Justin Cash
A flagship report has given advisers cause for optimism as salaries across the profession reach record highs with no signs of slowing down.
Around 500 advisers and 150 paraplanners took part in research led by recruitment consultants BWD alongside Money Marketing, taking the measure of how pay packets vary by a whole range of factors including qualifications, firm status, age and gender.
The sample represented all areas of the UK and all sizes of firm ranging from one-man bands to firms with more than 1,000 staff. It took in responses from those with less than a year in the profession to those with more than 30 years of experience, painting one of the most comprehensive pictures to date on the state of the advice nation.
The lay of the land
Average total earnings for employed advisers reached £93,100 in 2017, up from £81,500 in 2016. For self-employed advisers, the figure was up nearly 4 per cent year on year to £89,100. Employed adviser pay packets outstripped their self-employed counterparts for the first time since 2013.
For employed advisers, the increase was driven by both a £7,000 increase in average bonuses, accounting for £27,500 of total pay, as well as a £5,000 increase in average base salaries.
Since the census began in 2011, employed advisers have seen average pay increase by 40 per cent overall. Now, more than 23 per cent of advisers are earning over £100,000, and there continues to be an earnings premium for chartered advisers compared with level 4 qualified ones of around 14 per cent.
BWD puts rising pay packets down to a “very long bull market” combined with a raft of opportunities for advisers including unserviced demand for protection, opportunities for workplace-based planning, and automation helping advisers to assist lower income clients they may not have been able to service profitably in the past.
The firm says: “The development of a professionalised adviser community has led to a reduced supply of advisers at a time when pension freedoms coupled with general reduction in government and employer support has placed the onus on the individual – who of course needs advice. So low supply and high demand has to create a buoyant price for advice – reflected in the rates and volume of remuneration.”
The results paint a positive picture for the future of the profession. Less than 10 per cent of advisers expect wages to fall in 2018, compared with 18 per cent who are expecting a double-digit percentage increase.
Ancillary services such as business development managers and compliance professionals are also seeing their salaries increase on the back of strong demand for advice.
Personal Finance Society chief executive Keith Richards notes that advisers are both dealing with more volume in the post-RDR world, but are also developing more holistic financial planning propositions with higher service levels for which they can charge greater fees.
Richards says: “There are a number of contributing factors. We have often spoken about the need for advice, but there wasn’t always an evident demand for it. What we have now seen, supported by the introduction of the pension freedoms, is that demand is evident, and that means all advisers are busier and, unsurprisingly, their earnings increase accordingly.”
However, he cautions against performance-linked pay featuring too heavily in adviser remuneration.
He says: “Having the right balance of financial incentives is really key so as to not drive the wrong behaviours, which is what the market suffered from in the past with lower base salaries and bigger bonuses. There’s no real evidence intermediaries are moving back that way, but, clearly, as people work harder they are rewarded by bonus structures.
“Bonuses are not the problem, it’s the culture of doing it for the right reasons that needs to be there.”
On a further positive note, there has been little increase in the average age of advisers, having only crept up from 45 in 2016 to 46 in 2017.
Chapters Financial adviser Keith Churchouse says that awareness of pay packets, as well as professionalism, could be used to drive more youngsters into advice.
He says: “There has been a significant drive by the PFS and the Chartered Institute for Securities and Investment to spur professionalism and ethics going forward. It has been going on for the past few years and it’s reflected in the remuneration advisers can make.
“You could argue the RDR has been hugely beneficial in repairing professionalism and remuneration because you are not going to put all that effort in without getting remunerated for it.
“Maybe this is something professional bodies haven’t picked up on so well. We all strive to be chartered to offer better service for clients, but maybe we should link it to earning good money for being well qualified as well.
“Advisers should be remunerated for the hard work and effort they put in, so it’s good news to see people being remunerated properly. My only word of caution is that we must at all costs stay away from the bonus culture of the banks and other organisations of the past; we would want to see basic salaries moving up as well.”
Gaps in the net
Although the picture is overwhelmingly positive for advisers, there are some key divides to note across the profession.
Unsurprisingly, advisers based in London are the highest earners, while areas such as the East Midlands and North East come in lower. While there was no significant difference in pay between independent and restricted advisers, network advisers appear worse off than their directly authorised counterparts, who earned 23 per cent more than appointed representatives.
Former Defaqto insight consultant Gill Cardy says that this could reflect the fact that advisers may choose to operate outside of a network or leave one so that they can set up new services, such as life planning, that may not be offered by the network but add an extra revenue stream.
She says: “I would think that typically you might find that network advisers might be smaller, they might be older, but also they might be more inclined to go with the flow because it’s a bit easier, whereas the people who have always been directly authorised or become directly authorised have done so because it gives them a greater freedom to do other things and offer other services they think clients want, not just a pension selling process.”
Churchouse suggests that there may be a greater proportion of chartered advisers among the directly authorised community, as opposed to networks, which could explain the pay differential.
Paraplanner earnings were up by £2,500, but still significantly lag advisers at an average of £38,600, despite greater recognition of the value and competencies of paraplanners as a profession in its own right in recent years. Administrators at advice firms saw pay packets tick down by around £1,000.
Cardy says that some respondents to the research may be categorised as paraplanners by their firm, but are actually working more as administrators without the qualifications or technical skills that would justify higher salaries, providing at least some explanation for such a wide gap in pay between ‘advisers’ and ‘paraplanners’.
However, she suggests that as the reputation and need for paraplanning grows there is likely to be upward pressure on salaries.
Cardy says: “I always hesitate around the assumption that paraplanners will become advisers, because they are two different skill sets, but if paraplanners start to realise they are on around £30,000 and advisers are on more like £80,000, maybe they could live with that move.”
The gender divide
Perhaps the most worrying result of the research relates to the gulf between male and female advisers, however.
While large asset managers have had to report their gender pay gaps under new government rules, we are now able to paint a picture of the gender divide across smaller advice firms.
Of the financial advisers who responded to the survey, 86 per cent were male, up from 78 per cent in 2016. On basic salary for employed advisers, the gender gap is 7.9 per cent, rising to 8.8 per cent when bonuses are included.
Even the traditionally female-dominated role of paraplanning has seen a shift towards greater male representation. In 2013, less than a third of paraplanners were male, but this has now reached 60 per cent, which BWD attributes to “the evolution in that role from technically skilled support player to strategic pivot for many advisory and planning practices”.
While BWD notes that “larger firms of advisers operate with a more gender-neutral earnings pattern”, the recruitment consultancy laments the lack of change in the gender balance over the years.
BWD writes: “Both advisers and business development managers are underweighted in women and there is no progress in this regard over the years this census has been carried out. There is nothing inherent in either role that suggests one gender will be more suited than the other.”
Richards adds: “In the modern era, in a modern and advancing profession, there should be no difference between male and female pay.
“Sometimes, experience will demand higher salaries, and its true to say we are seeing more young females coming into the advice sector, and by definition they won’t necessarily have the same level of experience that can demand a slightly higher salary.”
The average gender pay gap at advice firms appears to be far less than at their asset management cousins, with firms such as Hermes Asset Management and Old Mutual Global Investors reporting differences of around 30 per cent.
The proportion of male to female staff also appears to be in line with other financial services sectors such as asset management, where studies suggest around 13 per cent of fund managers are female.
Churchouse says: “We have certainly seen higher differentials elsewhere, but I’m not sure it can be explained away. I don’t believe there are barriers to success. Good people are worth their weight in gold irrespective of gender, so I hope that gap will come down further.”
Headwinds for the industry
Although overall the profession appears in rude health, commentators have urged advisers to guard against complacency.
BWD notes a number of potential tripwires for advisers, including defined benefit transfer risks, the pressure on professional indemnity insurance policies, and the march of lower cost passive alternatives.
BWD writes: “At the moment, the total take from the consumers ‘cake’ only appears acceptable because stock market-based gains have been high. Yet the proliferation of firms – asset, portfolio manager, risk or cash flow tool provider, back office, platform provider etc – all impact on the adviser firm’s margin.”
Another concern is the lack of new blood coming into the profession. The proportion of advisers under 30 remained below 5 per cent, according to the research. However, 2017 has seen academy and training programmes either launched or expanded across the market, including at firms such as St James’s Place and network Sandringham announcing future plans to do so.
Lena Patel, ISJ Independent Financial Planning director
A lot of it is down to adviser charging. People are charging more post-RDR for the amount of work and effort going into it. The cost of regulation and Financial Services Compensation Scheme bills is higher, so people have thought now we need to do some segmentation and are heading towards 1 per cent ongoing so they are tending to be earning that bit more.
It can be a lucrative job, but getting the people through the door at the level you want them is quite difficult. People are still focused on technical aspects and exams but building the life skills takes years, and often people don’t charge any more for it.
When businesses are self-employed, there’s only so much they can charge and be paid if staff are not bringing in business. Me having a paraplanner gives away the tasks I don’t enjoy to someone who is good at them, but we don’t tend to value those people enough. I couldn’t live without my paraplanner and the profession needs to value them and not say they are just paraplanners.
Go to BWD website to read the full report