High-performing financial advice firms around the world are less focused on managing compliance and regulatory issues and are growing faster than their counterparts in Australia and New Zealand, and are more profitable and generate more revenue per adviser.

Dimensional Fund Advisors’ latest Global Advisor Study suggests high-performing local advice practices hold their own when it comes to client retention, but generate significantly less revenue per senior adviser and have slightly tighter profit margins. Employee turnover in Australian and New Zealand firms is double the global average.

The latest DFA report covers 740 advice firms around the world, including 180 high-performing firms. Of these, 75 firms are located in Australia and New Zealand, including 18 that fit the “high-performing” definition, being those in the top quintile of practices according to revenue growth, client retention, employee retention, profit margin and revenue per adviser.

The report says the Australian and New Zealand firms generate average revenue of $2 million. Globally the average revenue figure is $US3.8 million ($5.6 million). Year-on-year revenue growth for high-performing advice firms globally reached 30 per cent a year, 50 per cent faster than for firms in Australia and New Zealand (19 per cent YOY growth).

More support for fewer senior staff

The Dimensional survey hints at the solutions leading advice practices are developing to the thorny issue of achieving scale in financial advice.

Dimensional Australia client group co-head Nathan Krieger tells Professional Planner the best advice firms around the world tend to have a structure made up of a relatively small number of senior advisers, who play a leading role in face-to-face client interactions, supported by a relatively greater number of less senior and therefore less expensive resources.

High-performing firms have, on average, three and a half senior advisers and two service advisers (five and a half senior staff in all), supported by four and a half support staff. Firms that perform less well have, on average, five senior advisers and two service advisers (seven senior staff) supported by three support staff.

This is supported by analysis of growth in staff numbers. The Dimensional report finds that high performing firms are growing their client service support personnel significantly faster – they report 84 per cent YOY growth in associate adviser numbers, compared to just 4 per cent growth for other firms, and 30 per cent YOY growth in client service associate staff, compared to just 16 per cent of other firms.

“They’re getting leverage, and they’re able to get leverage from the way in which they’re organising their teams, the way in which they’re using consistent processes and systems to apply at the back end, and both the production and output that comes from that,” Krieger says.

“The team set-up allows a lot more scalability for advice firms, whether they’re bringing in support advisers and those support advisers or service advisers might also be supported by lower-paid but developing talent.”

Selling more services to more clients

In addition, and possibly as a result of these structures, high-performing firms sell more services to more of their clients. The report says clients of high performing firms are more likely to receive tax planning, retirement planning and insurance planning services than are clients of firms that don’t perform as well.