The retail intermediary market 2018

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 Retail Mediation Activities Return (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 2018.

• Key findings
• Revenue earned from regulated activities 2014-2018
• Revenue earned by type of firm
• Capital resource requirements
• Professional indemnity insurance premiums
• Retail investment advice and charges
• About the source data[1]

Download underlying data for 2018 (XLSX)[2]

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 2014 to 2018

This section provides an overview of the revenue earned from each of the 3 specific regulated activities reported by firms in RMA-B (Profit and Loss account). The data featured here reflect only intermediary firms that submit their revenue details on RMA-B (a population of around 11,850 firms for 2018).

Retail investments 

Home finance (mortgage) mediation

Non-investment insurance distribution

Analysis of revenue earned by type of firm

This section provides information on revenue and adviser staff for 2018 split by type of firm. We give each firm a ‘primary category’ reflecting our understanding of 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 data in this section[1].

Table 1: Financial advisers – average revenue and profits in 2018

Table 1 shows that firms in the 6-50 adviser category have the highest average retail investment revenue per adviser at £194,000 (up 13% from £171,000 in 2017). Firms in this category have shown the highest growth on 2017 with average total revenue per firm up 11% and average pre-tax profits up 28% on 2017. In contrast, firms with over 50 advisers showed only a 3% increase in revenue per adviser, a slight decline in average total revenue (down 2%) and an increase in average reported losses per firm from £162,000 to £539,000.

Mortgage Brokers

Mortgage brokers reported total earnings from the 3 main regulated activities of £1.31bn, up 13% from £1.16bn in 2017. Figure 4 shows that a third of this (£449m) came from selling non-investment insurance products.

Table 2: Mortgage brokers – average revenue per firm/adviser in 2018

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 (62%) than the other firms. They are therefore more reliant on revenue from other sources (ie insurance mediation). Average revenue earned per adviser increased compared with 2017 for all firms except those in the 6-50 advisers band, where it fell by 14%.

Non-investment insurance intermediaries

Insurance brokers reported total earnings from the 3 main regulated activities of £17.1 billion, up 5% from £16.2 billion in 2017. 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 2018

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 home finance/non-investment insurance activities and for retail investment activities. Find out more about the source data[5].

Table 4: Number of firms by size of capital requirement

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 24% 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 2017. 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 33% to 37% (1,890 firms). This is likely to reflect the strong revenue growth seen in the sector which has meant that the capital required to be held by firms has also increased.

Professional indemnity insurance (PII)

Tables 5-7 show average PII premiums reported as paid in 2018 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 2018 on RMA-E and reported earning revenue from regulated mediation business on RMA-B. Find out more about source data in this section[6].

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 2018 only and so pre-date that change. In our Policy Statement (PS19/8[1]) we outlined the impact that the change to the award limit may have on the future provision and pricing of PII for intermediary firms, in particular, for personal investment firms advising on higher risk transactions.

Table 5: PII premiums paid by financial adviser firms

Table 5 shows that the average PII premium paid by financial adviser firms in 2018 was 2% of their average regulated revenue (1.9% in 2017). 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 2017, the total spent on PII premiums increased by 16% from £81.7m to £94.4m which largely reflects the growth in revenue earned by these firms.

Table 6: PII premiums paid by mortgage broker firms

The average PII premium paid by mortgage brokers in 2018 was less than 1% of average regulated revenue. Firms paid a proportionately lower premium the larger their revenue. Compared to 2017 there has been a decrease in PII premiums paid for all except the smallest firms (up to £100,000 revenue).

Table 7: PII premiums paid by insurance intermediary firms

The average PII premium paid by insurance brokers was just over 1% 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. Apart from the largest firms, premiums fell slightly as a proportion of revenue compared to 2017.

Retail investment advice and adviser charges in 2018

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 included here[7]. Data are for 2018 unless stated otherwise. 

Table 8: Number of initial advice services

Table 9: Number of retail clients paying for ongoing services

For one-off advice services, Independent advice has increased 180,768 (38%) from 2017 to 660,704, while Restricted has declined 113,304 (15%) to 622,425.

The number of new clients has decreased by 1.2% compared to 2017 to 501,012, while the number of clients ceasing their relationship increased 21% to 157,669.

Find out more about the source data[9] on this page.  

Copyright

The data on this page is available under the terms of the Open Government Licence[-5].