The retail intermediary market 2019

This page provides our latest analysis of the intermediary sector based on data drawn from the Retail Mediation Activities Return (RMAR). 

Firms that provide advice on, or arrange, mortgages, insurance policies or retail investment products for consumers must send us information about their activities on the RMAR.

We use this information to help us supervise the activities of these intermediary firms and inform our other regulatory functions. We have published data from the RMAR since 2016. This analysis gives an update on firms in the retail intermediary sector based on data for 2019.

Key findings

  • • Revenue earned by intermediary firms increased in 2019 compared to 2018. Revenue earned by mortgage, retail investment and non-investment insurance firms increased by 8.5%, 0.7% and 1% respectively in 2019. These are smaller increases than in previous years.
     
  • • Commission remains the dominant source of revenue for mortgage and insurance broking, accounting for 77% and 83% of revenue respectively. For retail investment business, commission accounted for 16% of revenue while fees/charges accounted for 82%.
     
  • • 94% of financial adviser firms reported making a profit in 2019 with total pre-tax profits down to £808m from £872m in 2018.
     
  • • Small firms remain a significant part of the intermediary sector. Nearly 9 in 10 financial adviser and mortgage broker firms have 5 or fewer adviser staff. Firms with 1 adviser made an average total revenue per firm of £208,000 in 2019, up just over 1% from £205,000 in 2018.
     
  • • Compared with 2018, the total spent on professional indemnity insurance (PII) premiums by financial adviser firms increased by 17% from £94.4m to £110.3m. PII premium as a percentage of regulated revenue has increased in 2019 for financial adviser firms when compared with 2018. The smallest firms pay a higher proportion of their revenue; 2.3% for mortgage brokers, 4.4% for financial advisers and 5.5% for insurance intermediaries.
     
  • • Firms providing retail investment advice, report that revenue from Initial advice charges has decreased by £273m (-14%) to £1.67bn, while revenue from Ongoing charges has increased £529m (16%) to £3.89bn.

 

Download underlying data for 2019 (XLSX)

Chart tips: hover over data series to view the data values and filter the data categories by clicking on the legend.

Revenue earned from regulated intermediary activities 2015 to 2019

This section provides an overview of the revenue earned from each of the 3 specific regulated activities reported by firms in section B of the RMAR (Profit and Loss account). The data featured here reflect only intermediary firms that submit their revenue details on section B or the RMAR (a population of around 12,000 firms for 2019). Find out more information about the RMAR sections.

Retail investments 

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Data table

Figure 1 shows that total reported annual revenue from retail investment business increased by 0.7% between 2018 and 2019 (from £4.42bn to £4.45bn). Revenue for 2019 is up by 47% on 2015 and the number of firms reporting revenue (5,111) up by 5% over the same period.

Commission continued to decline as a source of revenue, accounting for 16% of revenue earned in 2019 compared to 17% in 2018 and 20% in 2017. This continues the trend seen since the implementation of the Retail Distribution Review (RDR) at the end of 2012.

Home finance (mortgage) mediation

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Data table

Figure 2 shows that total reported revenue earned from the mediation of regulated mortgages was £1.28bn in 2019, up 8.5% from £1.18bn in 2018. This includes £88m earned from second, or subsequent, charge mortgage business - a 31% increase on 2018 (£67m). This is partly in line with general increases in second charge mortgage lending between 2018 and 2019. Commission continues to be the main source of revenue for mortgage mediation, accounting for 77% of revenue earned in 2019 (down from 79% in 2018).

Non-investment insurance distribution

*Non-investment insurance is a contract of insurance which is a general insurance contract or a pure protection contract but which is not a long-term care insurance contract.

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Data table

Figure 3 shows that overall reported revenue earned from non-investment insurance distribution was £18.4bn in 2019. This represents an increase of 1% since 2018 (from £18.2bn). Commission continues to be the main source of earnings, accounting for 83% of revenue. 

Analysis of revenue earned by type of firm

This section provides information on revenue and adviser staff for 2019 split by type of firm. We give each firm a ‘category’ which is based on the firm’s main type of regulated business activity, although many firms carry out more than one type of business. Find out more about the source of the data

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Data table

Financial adviser firms

Financial adviser firms reported total earnings from the 3 main regulated activities of £5.2bn, up slightly from £5.1bn in 2018. Figure 4 shows that, within this, 12% of revenue came from non-investment insurance distribution and 5% from mortgage mediation, unchanged on 2018.

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Data table

Figure 5 shows that nearly 9 out of 10 financial adviser firms have 5 advisers or fewer each and these firms account for 3 out of 10 adviser posts at financial adviser firms. Firms with over 50 adviser staff (1% of firms) account for 47% of all adviser posts (compared to 45% in 2018).

The total number of adviser posts at financial adviser firms increased by 3% in 2019 to 27,557, the majority of the increase was accounted for by the larger firms. There are also staff who advise on retail investments employed at other types of firms – see the underlying data tables for additional information on adviser staff numbers.

Table 1: Financial advisers – average revenue and profits in 2019

Adviser band

Average retail investment revenue per firm (£)

Average retail investment revenue per adviser (£)

Average total revenue per firm (£)

Average pre-tax profit per firm (£)

Average retained profit per firm (£)

1 adviser

166,019

166,019

208,019

89,155

28,089

2-5 advisers

518,812

186,444

624,140

197,765

54,247

6-50 advisers

2,047,789

189,449

2,409,121

425,527

152,735

Over 50 advisers

52,036,179

160,303

68,000,404

-1,028,415

-1,140,752

Table 1 shows that firms in the 6-50 adviser category have the highest average retail investment revenue per adviser at £189,449 (although down 3% from £194,390 in 2018). Average retail investment revenue per firm and per adviser declined in all adviser band categories since 2018 except for those firms with 1 adviser which increased by around 1% per firm and per adviser since 2018.

Average pre-tax profit per firm also decreased since 2018, again except for those with 1 adviser which increased by less than 1%. Average retained profit per firm was down on 2018 for all sizes of firm. Revenue and profit declined the most for those firms with over 50 advisers when compared with 2018.

The loss figures reported for firms with over 50 advisers are reported by a small number of firms:

  • the average pre-tax loss was -£10m for the 10 firms making a loss in 2019
  • the average profit for 26 profit making firms was £2.5m
  • the median profit was approximately £0.5m

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Data table

Total reported pre-tax profits for all reporting financial adviser firms was £808m in 2019 down 7% from £872m in 2018. Overall, 94% of firms were profitable. Figure 6 shows that pre-tax profit as a proportion of regulated revenue declined with the size of the firm. 72% of firms with over 50 advisers reported a profit, but across the firms of this size an aggregate loss of £37m was reported due to significant losses reported by a few firms.

Firms with 1 adviser showed the highest profit margin with an average pre-tax profit of 43%, although this may reflect the likelihood that sole traders pay themselves out of profits rather than as salary. Average retained profit (after tax and dividends) was 14% of revenue for the smallest firms. Retained profit data is available in the underlying data tables.

Mortgage Brokers

Mortgage brokers reported total earnings from the 3 main regulated activities of £1.39bn up 6% from £1.31bn in 2018. Figure 4 shows that a third of this (£464m) came from selling non-investment insurance products.

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Data table

Figure 7 shows that a small number of large firms with over 50 advisers account for 67% of advisers working at mortgage brokers. Nearly 9 in 10 firms have 5 advisers or fewer. The total number of staff advising on mortgages was 14,575, up 4% on 2017, most of which was accounted for by the large firms. There are also staff who advise on mortgages employed at other types of firms – see the underlying data tables for additional information on these.

Table 2: Mortgage brokers – average revenue per firm/adviser in 2019

Adviser Band

Average mortgage revenue per firm (£)

Average regulated revenue per firm (£)

Average mortgage revenue per adviser (£)

Average regulated revenue per adviser (£)

1 adviser

£40,516 

£59,153

£40,516

£59,153

2-5 advisers

£147,956

£200,237

£53,103

£71,867

6-50 advisers

£916,406

£1,202,243

£72,189

£94,706

Over 50 advisers

£23,174,131

£36,882,529

£64,115

£102,042

Table 2 shows that the average revenue earned per mortgage adviser generally increases with the size of the firm. Table 2 also shows that the large firms (over 50 advisers) earn a lower proportion of regulated revenue from mortgage mediation (63%) than the other firms. Such firms are more reliant on revenue from other sources (i.e. insurance mediation). 

Non-investment insurance intermediaries

Insurance brokers reported total earnings from the 3 main regulated activities of £17.3bn in 2019, up 1% from £17.1 billion in 2018. Figure 4 shows that, in contrast with the other intermediary types, nearly all of this came from their core insurance business. 

Table 3: Insurance intermediaries – average revenue per firm in 2019

Revenue Band

Number of firms

Total insurance revenue (£)

Average insurance revenue per firm (£)

Less than £100k revenue

1,358

£48,579,845

£35,773

£101k to £500k revenue

1,446

£362,000,093

£250,346

£501k to £10m revenue

1,516

£3,312,167,547

£2,184,807

Over £10m revenue

213

£13,489,528,582

£63,331,120

The 2019 revenue per firm for insurance intermediaries has decreased slightly compared to 2018 for all except the larger firms (those with over £10m revenue).

Capital resource requirements

We require intermediary firms to hold at least a specified amount of capital. The exact requirement for each firm depends on the nature its business and the amount of revenue it earns. There are separate requirements for mortgage/non-investment insurance activities and for retail investment activities. Find out more about the source data.

Table 4: Number of firms by size of capital requirement

 

Number of firms

Capital requirement

Financial Adviser

Mortgage Broker

Non-investment Insurance Intermediary

£5,000

0

1,108

1,211

Between £5,000 and £20,000

0

345

1,727

£20,000

2,900

35

66

Between £20,000 and £100,000

1,730

104

1,244

£100,000 and over

443

40

683

Table 4 shows that 2 out of 3 mortgage brokers are required to hold only the minimum base capital requirement of £5,000. Table 4 also shows that 25% of insurance brokers are required to hold capital of £5,000 and 35% are required to hold between £5,000 and £20,000. This reflects the fact that insurance brokers are more likely to hold client money, which requires a higher percentage of income and a higher minimum level capital (£10,000) to be held.

The overall picture has not changed significantly since 2018. Once again, the most notable change has been an increase in the proportion of financial adviser firms needing to hold more than the minimum capital for retail investment business (£20,000) from 37% to 43% (2,173 firms). This is likely to reflect the revenue growth seen in the sector which has meant that the capital required to be held by firms has also increased.

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Data table

Compared with 2018, the overall pattern of capital surpluses held in 2019 has not changed significantly. Figure 8 shows that over 99% of firms held allowable capital equal to or greater than the amount they were required to hold. It also shows that the most common level of surplus held is between £10,000 and £100,000, particularly for mortgage brokers and financial advisers.

A higher proportion of insurance intermediaries have larger surpluses than the other firm types, which reflects the very large firms in that population. Over 3 in 10 of these firms have a surplus of over £500,000.

Professional indemnity insurance (PII)

Tables 5-7 show average PII premiums reported as paid in 2019 by firms for the 3 main categories of intermediary firm split by size of firm. The data reflect those firms that reported that they renewed their PII cover in 2019 on RMA-E and reported earning revenue from regulated mediation business on RMA-B. Find out more about source data in this section.

In March 2019, we announced an increase in the Financial Ombudsman Service’s award limit from £150,000 to £350,000. The increase is applicable to complaints referred to the Service from 1 April 2019, about acts or omissions by firms from that date. The data featured here go up to 31 December 2019 so may include some data following the change depending on each firm’s policy renewal date. 

In our Policy Statement (PS19/8) we outlined that the change to the award limit could have a material impact upon the future provision and pricing of PII for intermediary firms, in particular, for personal investment firms advising on higher risk transactions (such as defined benefit pension transfers).

Table 5: PII premiums paid by financial adviser firms

Revenue band

Total annualised PII premium (£)

Average PII premium per firm (£)

Average regulated revenue per firm (£)

PII premium as % of regulated revenue

Up to £100k revenue

£2,352,756

£2,580

£58,557

4.4%

£101k to £500k revenue

£15,386,575

£6,802

£247,151

2.8%

£501k to £10m revenue

£60,314,021

£43,833

£1,343,831

3.3%

Over £10m revenue

£32,220,699

£1,039,377

£75,914,309

1.4%

All firms

£110,274,051

£24,072

£1,051,062

2.3%

Table 5 shows that the average PII premium paid by financial adviser firms in 2019 was 2.3% of their average regulated revenue (2% in 2018). Financial adviser firms generally paid a lower premium the larger the firm, the exception being those in the £501,000 to £10m revenue band where the average premium as a percentage of revenue was higher than the band below.

Compared with 2018, the total spent on PII premiums increased by 17% from £94.4m to £110.3m. PII premium as a percentage of regulated revenue has increased in 2019 for financial adviser firms when compared with 2018. The ‘£101 to £500k’ band increased from 2.2% in 2018 to 2.8% in 2019. Whilst this represents an increase of 27% this does not represent a significant change in the burden it places on firms.  These increases are likely to reflect the changes in the Ombudsman award limit and claims experienced by the market. It is important to note that financial adviser firms will also engage in mortgage advice and non-investment insurance to varying degrees.

Table 6: PII premiums paid by mortgage broker firms

Revenue band

Total annualised PII premium (£)

Average PII premium per firm (£)

Average regulated revenue per firm (£)

PII premium as % of regulated revenue

Up to £100k revenue

£759,077

£903

£39,948

2.3%

£101k to £500k revenue

£1,166,747

£2,446

£212,976

1.1%

£501k to £10m revenue

£1,923,268

£12,408

£1,731,498

0.7%

Over £10m revenue

£6,409,346

£356,075

£51,314,787

0.7%

All firms

£10,258,438

£6,880

£890,164

0.8%

The average PII premium paid by mortgage brokers in 2019 was again less than 1% of average regulated revenue. Firms paid a proportionately lower premium the larger their revenue. Compared to 2018, PII increased for the smallest firms (Up to £100k revenue) and the largest firms (Over £10m revenue).

Table 7: PII premiums paid by insurance intermediary firms

Revenue band

Total annualised PII premium (£)

Average PII premium per firm (£)

Average regulated revenue per firm (£)

PII premium as % of regulated revenue

Up to £100k revenue

£2,561,079

£2,212

£40,464

5.5%

£101k to £500k revenue

£9,208,217

£6,408

£249,814

2.6%

£501k to £10m revenue

£124,905,434

£86,740

£2,156,109

4.0%

Over £10m revenue

£150,645,407

£753,227

£65,140,093

1.2%

All firms

£287,320,137

£67,844

£3,905,232

1.7%

The average PII premium paid by insurance brokers was 1.7% of average regulated revenue. Within this there is significant variation by size of firm with the smallest firms paying a much higher percentage of revenue than the largest firms. In 2019, premiums increased as a proportion of revenue compared to 2018.

Retail investment advice and adviser charges in 2019

This section provides information on investment advice and related charges where a firm provides a personal recommendation to a retail client on a retail investment product. The data reflect firms that reported on RMA-K. ​​​​​Find out more about the source data. Data are for 2019 unless stated otherwise.

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Data table

Figure 9 shows that in 2019 the breakdown of advice type by number of firms is 85% (up 1% on 2018) for Independent, 13% for Restricted (down 1% on 2018) and 2% for Both (unchanged on 2018). For firms with the category of financial adviser, advice type by number of firms was 88% for Independent and 10% for Restricted, unchanged on 2018.

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Data table

Figure 10 shows that total revenue earned from adviser charges by all firms reporting in 2019 increased by £257m to £5.56bn from £5.3bn in 2018. Figure 10 also shows that the split between Independent and Restricted advice based on revenue, has remained largely the same as 2018: Independent (59%) and Restricted (41%), respectively.

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Data table

Figure 11 shows that for financial adviser firms a higher proportion of revenue (62%) was earned from Independent advice in 2019, down from 63% in 2018, continuing a downward trend (67% in 2016).

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Data table

Figure 12 shows that revenue from Initial advice charges has decreased by £273m (-14%) to £1.67bn, while revenue from Ongoing charges has increased £529m (16%) to £3.89bn. The proportion of ongoing adviser changes increased from 63% of all charges in 2018 to 70% in 2019 and compares with just under 60% in 2016.

Since adviser charges are often linked to the value of investments, the revenue earned by advisers may increase if clients are investing larger sums or, in the case of ongoing charges, the value of investments goes up because of stock market performance.

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Data table

Figure 13 shows the breakdown between Direct and Facilitated payment methods. Facilitated payment methods (where the product provider or platform facilitates the payment of fees from the client to the adviser) has increased, up 1 percentage points to 87% between 2018 and 2019. This trend has increased 8 percentage points from 2016, where it was 79%.

Copyright

The data on this page is available under the terms of the Open Government Licence.

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