Is there still a market out there for us?
Originally sent: January 23, 2008Revenue & Customs recently released their biannual Survey of Personal Incomes. “Interesting reading” and “Revenue & Customs” are not phrases most people would consider combining. These latest statistics are not my idea of bedtime relaxation, especially without a magnifying glass, but some of the facts which emerge from them are certainly interesting from a financial adviser’s perspective.
The fact that really jumped out of the page to me is that there is a very large number of higher rate taxpayers out there. I already knew that, but seeing 3,660,000 staring at me from the page was quite motivating. Most of these higher rate taxpayers need financial planning of one sort or another and should be prepared to pay a reasonable fee for it. So the market for IFAs has to be at least 3,660,000. In reality it is a lot bigger, as there is also a lot of work to be done for many of the 27,940,000 who only pay basic rate tax. But ignoring all the basic rate taxpayers for the moment, and assuming our only market is the 40% payers, where does that leave us?
Depending on who you ask, there are between 15,000 and 30,000 IFAs. The larger figure, in my view, is far too high. It probably includes a lot of deskbound paraplanners as well as advisers who meet the clients face to face. But I will use 30,000, which will then give an extremely conservative figure for the amount of business there is for every single IFA. Based on this, there is a potential market of at least 122 high earning clients for every IFA in the country.
Naturally, there are large differences in income across the country. It is true that London and the South East has far more than its fair share of high earners. But it is also very true to say that London and the South East has more than its fair share of financial advisers. The number of higher rate taxpayers per IFA in London and the South East is 130 – not that many more than the national average. The region that surprised me the most was East Anglia – there are 366 higher rate taxpayers per IFA in East Anglia. Perhaps we should all consider pulling up our roots and finding a home on the Norfolk Broads!
Now let me ask you a question. If you had 122 higher rate tax paying clients (per IFA, not per practice) do you think you could make a very decent living from that client bank?
The industry has moved very firmly in the direction of charging fees and retainers. An IFA firm working this new model will typically charge retainers to cover the basic overheads and then fees on top of this to give the advisers their real income. At the lower end of the market an IFA might be charging £100 a month per client before even doing any work. With 122 retainer clients that would give you an income of just over £146,000 to cover your basic overheads. In other words you would be grossing £146,000 before getting out of bed. I know many IFAs charge a lot more and have a much higher “passive” income, but even just £146,000 per IFA before any fees or commissions for the work you do is quite nice to have as a safety net.
It is important we allocate enough time to giving our clients the right level of service. This will consume very different amounts of your time per client, depending not only on the type of service provided but also on the size of your support team. But if you are giving a full service of financial planning advice I think it would be quite difficult for one individual to maintain this for anywhere near 122 clients – let alone the 366 in East Anglia! Add to that the national average of 771 basic rate tax paying clients and there is certainly a lot more potential work out there than one IFA can handle. Which means, by definition, there have to be a lot of clients out there who should be getting proper independent advice but who are not actually getting it. All of whom are your prospective clients, and the future of your business.
The moral of all this, and what to me was an interesting conclusion to draw from the Revenue & Customs statistics, is that for those of us prepared to go the extra mile and do some marketing to put ourselves in front of the right clients, the market really is out there. Those of us who already do that marketing know this, of course, but it is good to see the statistics confirm it.
Do not listen to any of your colleagues who try to tell you our industry is dying and there is no more money to be made. If you go out and look for it, there is an enormous cake to be sliced for a reducing number of party guests, many of whom are standing around talking, but not actually doing anything about eating the cake.
Adviser Breakthrough Training Solutions Ltd. takes no responsibility for loss occasioned by any person acting or refraining from action, or in consequence of any other person acting or refraining from action, as a result of the material in this article.
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