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.
“They’re very clear on being client centric, they’re very clear on the proposition that they bring they’re very comfortable and confident with the value of advice,” Krieger says.
“It’s not about the return this week, this month, this year. it’s about the long-term outcomes and guiding and stewarding people through the transactions that they go through [in] their lives. So the best Australian firms are up there with the best in the world.”
Krieger says the best Australian firms do lag globally on a number of metrics but as the pace and extent of regulatory change slows, they’re likely to begin focusing on the same issues as their global counterparts and that gap may close.
| Top three challenges facing high-performing advice firms | |
| Australia/New Zealand | Global |
| 1. Implementing workflow processes | 1. Recruiting/hiring qualified employees |
| 2. Selecting and maintaining technology | 2. Implementing workflow processes |
| 3. Managing compliance/regulatory changes | 3. Developing employees |
| Source: Dimensional Fund Advisors Global Advisor Study 2022 | |
“In Australia they’re a bit more encumbered with regulation and obligations to meet those regulations in Australian law,” Krieger says, whereas global advice firms do not rank managing compliance and regulatory change among their top three challenges.
“In other words, those that aren’t operating at that high level are continuing to be anchored by the need to meet that regulatory obligation.
“Those that are high-performing are focused on hiring the right people, they’re focused on retaining their staff, they’re focused on developing their employees, they’re focused on refining and improving their workflow processes. Those are the top three challenges that they’re specifically focused on.”
