With one in three companies in the IFA space in the red, Plimsoll warned many firms will “run out of cash” unless they refocus on their bottom lines and let consumers share the burden of escalating costs.
“Whether its fuel, materials or wage demands every company in the UK IFA industry is being squeezed by ever increasing costs,” said Plimsoll lead analyst David Pattison.
According to the survey of 1,000 advice firms, although more than half (52%) have seen gross margins fall in the last year, they are reluctant to pass on price rises for fear of losing customers to cost-savvy competitors.
“Falling profit margins across the industry is the first warning sign that this strategy has become unsustainable,” said Pattison.
The report suggested the average profit margin in the UK IFA industry has fallen to 7% over the past two years. Out of 1000 firms, 293 were loss-making in that time, with 148 of those losing money for the second consecutive year.
“These companies face a tough decision – protect their market share and continue to lose money or adjust their prices to reflect their increased costs,” added Pattison.
“Without refocusing on the bottom line, many of these companies will simply run out of cash.”
However, according to the analyst 385 companies have managed to increase their profit margins over the same period. In all, 707 companies have stayed in the black amid the inflationary environment.
“Clearly, operating profitably in the UK Independent financial advisors industry is difficult but not, as yet, impossible,” concluded Pattison.
