As the industry has been dealt an onslaught of legislative changes in recent years, it’s widely acknowledged that providing financial advice has never been more expensive than it is right now.
A survey recently published by Business Health found that smaller practices are struggling to deliver an acceptable profit return, drawing a direct correlation between profitability and the number of support staff.
To deal with the growing costs, financial advisers have lifted their fees a further 5 per cent in the past year, with the median client now paying $3710, research from the Adviser Ratings 2023 ‘Financial Advice Landscape Report’ revealed.
Over the last five years, the median fee has jumped by close to 40 per cent. But 90 per cent of advisers say that further rises are on the way as inflation, interest rates, wages and other cost pressures hit hard.
The problem is that many small advice businesses neglect their own cash flow planning. “We’re so focused on client work that brings in money, that we forget how important it is to plan our own cash flow and money going out,” Steps Financial certified financial planner Antoinette Mullins tells Professional Planner.
She and her business partner sit down once a month to discuss cash flow, checking incoming revenues, slower areas of the business and which expenses have grown. “We’ve got through a few cost cutting exercises, but there’s not many areas we can cut costs,” she says.
“It takes a lot to run a successful practice. Licensee fees, software, wages are all essentials, but are also our biggest costs.”
Expenses are categorised in Xero to ensure she puts enough aside for tax, GST and superannuation each month. “We also ensure that we have a minimum of three months’ expenses and wages set aside as cash, in case of slower months or emergencies.”
Once a year, Mullins sits down with her accountant to plan for the tax year that lies ahead.
“We look at what tax will be due and how much we can withdraw from the business without touching our emergency cash or putting too much pressure on ourselves,” Mullins says.
“We find we use [the accountant] for a lot of business decisions, as she’s a great sounding board for our own business planning. Having a good team of professionals in your corner makes the business planning a much easier process.”
JBS Financial founder and CEO Jenny Brown swears by a cashflow spreadsheet with projected and actual figures by financial year. It includes the various costs grouped so the firm can analyse movements between months and years.
“We project new business using actual figures and include our revenue goals by month in the projected and also actual,” Brown says.
“We review these monthly and have quarterly board meetings with our business coach to drill down on what we need to do short, medium and long term to achieve our targets.”
JBS Financial, which charges fixed fees as opposed to charging by the hour, reports on the fees received every six months per client group to understand the cost to serve its clients.
Reviewing fees regularly ensures the bulk of her clients remain profitable for the business, Brown says.
“To calculate cost to serve, we force time on all tasks and file notes, ensuring that the team record the time they spend on clients,” she says.
“Whilst this will never be 100% accurate it gives us a good idea of the cost to serve our clients.”
To arrive at hourly rates for each team member, Brown then calculates how much time staff spend on client work versus professional development, education, training and the like, striking an hourly rate for each of them.
All paraplanners are on the same hourly rate, while all client services staff and advisers share their own hourly rate.
“We review our processes and procedures regularly and are continually working on improving and streamline to remove the time it takes to do various tasks therefore helping save time overall,” Brown says.
