Consultants Business Health have pegged $3,558 as the average revenue per client in the 2020 financial advice landscape, giving financial planners a new benchmark with which to gauge their revenue management.

Amidst increasing compliance and licensing costs, a floundering professional indemnity market and the retreat of grandfathered commissions from advice revenue books, the figure of $3,558 represents the average level advisers need to be remunerated annually per client to run their business.

According to Business Health partner Rod Bertino, the new benchmark can also be used by advisers as a starting point to look at their own average revenue per client and decide whether it’s appropriate given the level of service provided.

“There’s no one right number, each business needs to understand their cost to serve and whether they’re charging at the right level with an appropriate profit margin,” Bertino tells Professional Planner.

Being above or below the industry average doesn’t correlate to an adviser’s value proposition being necessarily better or worse, he says. There are many different levels of service provided depending on a host of practice variables, which gives consumers more choice and allows more people to receive advice.

“Cost structures are also really different from business to business,” Bertino adds. “Some might be able to build a level of service for less cost through technology or something like cheaper premises. Each practice needs to understand what’s behind their own number.”

The partner explains that the research was undertaken over two years leading up to last month. A mixture of revenue models and financial advice types was incorporated, he says (“from niche specialists through to holistic advisers”) but no salaried advisers were included.

A high benchmark

Bertino says this is the first time Business Health have formally tracked average revenue per client.

Rod Bertino

While some might view $3,558 as a high benchmark – 150 clients at this level would equate to over half a million dollars in revenue per adviser – Bertino says a major contributor has been the exit from the industry of less profitable advice businesses, which can be partly attributed to higher costs across the board.

“The costs to deliver has got to a point where the profitability around smaller clients and smaller client books is questionable,” he says. “For example, in our latest analysis the profitability is less than ten per cent for practices with less gross revenue than $500,000. There needs to be a certain level of revenue to deliver an acceptable return as costs increase.”

In 2019 the Financial Planning Association commissioned researcher CoreData to conduct a similar survey; CoreData came to an even higher figure of $3,757 per year for ongoing advice.

“While each practice is unique in terms of their pricing and costs structure it’s hard to understand how an advice business can profitably provide the service they are if they’re not charging that number,” Bertino says.

The view from above