Latest FCA figures show that smaller financial advice firms are contending with higher insurance premiums than their bigger counterparts. This illustrates the growing need for firms to scale up, suggests Canada Life.
According to the FCA figures, firms with less than £100,000 in revenues tend to spend 4% of their revenues on insurance, a figure that drastically reduces to 2.2% for those with revenues between £100,000 and £500,000.
Neil Jones, wealth and tax specialist, Canada Life, said: “This will confirm what many advisers are thinking – that to deal with rising insurance costs, and indeed some of the other emerging risks today, scale is a part of the answer. That’s true whether you’re talking about the risk of increasing costs of insurance or other key issues, like improving IT, or providing DB advice, which requires more and specialist resources.
“Indeed, according to our research many smaller adviser firms and one-man bands believe that, when they do eventually decide to sell their business, it will be to a larger firm as they will struggle to find a smaller firm with the resources needed. These figures show no signs that the pressure on smaller firms is reducing.”
The findings, released by the FCA in its Retail Mediation Activities Return, also showed that 96% of adviser firms reported making a profit in 2018, with total pre-tax profits up to £872m from £698m in 2017.
