While it is always wise to have one eye on the forces shaping the environment of tomorrow, it is also prudent to understand where the marketplace is today and how it is changing over the short term.
Since 2002, Business Health, a consulting firm specialising in the financial services, has released a series of papers, known as the Future Ready analysis. These papers provide a comprehensive insight into the health of the Australian advisory industry and its preparedness for the future. The third paper in this series has recently been released and is based on the consolidated analysis from Business Health’s HealthCheck data warehouse which contains information on more than 1,000 Australian advisory practices.
As can be seen on the following graph, there has been significant improvement in the overall “health” of Australian advisory firms during the past few years, where “health” is measured by monitoring 32 key areas of an advisory practice. While not entirely unexpected, given the quality of practices that have become involved with our HealthCheck program over the past two years and the continuing importance and emphasis being placed on practice management by Australian business, it is nevertheless a pleasing result.
However, while some extremely strong results have been recorded, a number of key issues remain that will require further attention and strong leadership from advice-related firms. The fact remains that almost one in five of the better firms in the country still need a stronger health plan.
Our research shows that while average practice revenue has increased, average expenditure has also gone up by the same level. Consequently, with no positive improvement in overall business profitability since 2004, it appears that many practices have not been able to successfully leverage their existing infrastructures to lift their bottom line.
Proper business planning – incorporating succession, continuity and risk management – remains an important and all too often neglected area. While there has been some improvement since our 2004 analysis, the findings listed in the box to the right are clearly cause for concern.
We have also identified a level of disconnect between how advisers and clients perceive the delivery of services. While the majority of practices say that they segment their client base, our research, which now contains responses from more than 30,000 current clients of Australian financial advisers, suggests that their efforts in providing differentiated services are falling short of client expectations. Perhaps this should come as no real surprise given that less that one third of practices proactively seek feedback from their clients.
To help monitor the changes occurring within the advisory profession, Business Health compiled the first ever Australian Adviser Health Index. We will be releasing the index exclusively through upcoming issues of Professional Planner magazine. This will include tracking changes in the index and exploring the key factors driving these movements.
• More than 60 percent of firms have no documented succession plan
• Only 53 percent of practices have a clearly documented plan for their business
• A disaster recovery plan doesn’t exist for more than half of Australian practices
• Amazingly (given the nature of the advisory business), 37 percent of practices don’t have a key person plan in place
• 21 percent of firms were rated less than healthy in the area of operational compliance
Rod Bertino is a partner and director of Business Health Pty Ltd., a consulting firm specialising in the financial services industry. Business Health provides a suite of exclusive business diagnostic tools, supported by a range of specialised consultancy services.