How much is an IFA worth?
Originally sent: July 19, 2004The recent attack by the FSA on an IFA charging only ?150 per hour ? which actually seems a little on the low side to me when you consider the value a good IFA brings to his or her clients ? would be laughable if it were not so deadly serious.
Roughly speaking, in a professional service industry one would normally expect a business to charge around three times the amount it would pay to the professional providing the service. Not because the business is greedy but because it has other costs to defray and also a duty to make at least some profit for its shareholders.
This means the FSA are saying ?50 per hour is too much for an IFA to earn. Taking roughly 1,000 chargeable hours in a year (and that is a very optimistic figure unless you are going to borrow a practice applied by a lot of solicitors and charge more than one client at a time!) that means they are also saying a salary of ?50,000 is too high.
According to the CIMA website 40% of management accountants earn over ?50,000. 9% earn over ?100,000 ? double the figure that the FSA seems to think is over the top for an IFA to earn. Are we going to see legislation curbing accountants? salaries? I think not! And nor should we. Accountants are entitled to charge what the market can stand. So are IFAs.
A year ago, the National Statistics Office reported the average director of a major organisation in this country earned ?61.63 per hour . Presumably by the time this data was collated it was a year out of date, so this figure is probably now at least two years old. But the FSA is saying that an IFA ? even, presumably if he or she is the Managing Director and even if the practice is a major nationwide practice ? cannot even earn ?50 per hour.
According to the same survey, Management Consultants, Actuaries, Economists and Statisticians earned on average ?49,964.50. In other words, more or less the amount the FSA says is too much for an IFA. Let me repeat that in case you missed it ? the average a Management Consultant earns is more than the maximum the FSA thinks we are entitled to earn.
The national average earnings reported in April 2003 was just over ?25,000, which means the IFA who was castigated by the FSA for charging clients too much was probably taking around double the national average. Even stating that double the average is too high for a highly qualified and experienced professional seems too interfering to be true. But the reality is actually much worse than this. The IFA in question was based in Central London ? where, according to the government?s own survey, the average salary is ?41,411. So perhaps what we are actually being told by the government is that anything even slightly over the average wage is too high!
Those who would like to check the survey for themselves should go to http://www.statistics.gov.uk/downloads/theme_labour/NES2003_UK/NES2003_UK.pdf.
Coming closer to home, let us examine the payscale of officers of the FSA. A head of department earns between ?77,000 and ?140,000. A manager earns from ?44,500 to ?86,000. Even a humble associate can earn up to ?56,000. The phrase ?kettle calling the pot black? comes to mind here! Take a look at the FSA website if you don?t believe the salaries I have just quoted: http://www.fsa.gov.uk/foi/salary_ranges.pdf.
Taking commissions instead of fees is not, of course, the answer. Commissions have been under attack from all sides for some time now. If you think the answer is simply to continue relying on commission, then think again.
Of course, there is another answer. Don?t rely on either hourly fees or commissions. So how will you get paid? Well, why not join one of our programmes and not only find out but also be guided in exactly how to structure your practice to produce the income you deserve.
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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