The financial advice profession is booming, and practice revenues are soaring despite fewer advisers servicing fewer clients.
The 2023 ‘Financial Advice Efficiency Report’, conducted by Iress and Business Health, found the average total revenue of all practices surveyed had increased from $1.1 million in 2021 to $1.6 million in 2023, an increase of more than 45 per cent.
High-profit practices – defined as having a profit margin of at least 50 per cent – generated an average profit margin of more than 60 per cent, while the rest of the industry averaged only 27 per cent.
However, this is despite total revenue for high-profit practices averaging $1.4 million – less than the average for other practices of $1.7 million – but average revenue per adviser is $77,000 higher ($577,000) in high-profit practices.
The report surveyed 122 practices and found these gains despite a shrinking employee base which is servicing fewer clients.
Iress wealth management CEO Harry Mitchell tells Professional Planner this shift is a result of advisers maintaining clients who are willing to pay for services, rather than operating the subsidised advice models of the past.
“We’ve shifted from a large number of planners being in the big institutional, transactional referral base from the bank channel into the advice channel,” Mitchell says.
“There’s a shift in how advisers look and the customers they’re dealing with. You don’t have that long tail of B, C or D clients that you would get in the big banks.”
The average full-time-equivalent (FTE) employee per practice has dropped to 5.6 in 2023 from 6.8 in 2021, while the average funds under advice per adviser decreased from $83.4 million to $78.8 million.
The research found practices that communicated with their top clients more than 10 times a year achieved a 114 per cent profitability increase.
Research from Business Health released at the start of 2022 found the most profitable advice practices were surging, while other practices stagnated.
Business Health principal Rod Bertino previously identified practice benchmarking as a necessity for advice practices to improve, particularly if they didn’t have access to peers in their licensee network to share knowledge with.
Hurdles getting lower
In 2021, 60 per cent of those surveyed identified compliance and legislative burdens holding back growth which has fallen to 47 per cent, according to the latest report.
Mitchell says anecdotally he’s found the regulatory regime has become better understood in the advice world.
“There’s been a settling down around regulatory reform, and advisers, practices and licensees understand that now,” Mitchell says.
“[They] understand the process, it’s just a bit more [business as usual] territory whereas historically they never saw any of that.”
Minister for Financial Services Stephen Jones announced his response to the Quality of Advice Review last month, with red tape reduction for advisers to go ahead with the aim to clear up adviser capacity to take on more clients.
The QAR responses comes as the Iress research found the average clients per adviser also dropped marginally, from 133 to 129.
However, the research noted the top-performing practices had scaled-up to serve more clients and were averaging 505 versus the industry average of 457.
The industry has noted that advisers are likely going to need to double their client load to help bridge the retirement advice gap, which the minister says is about five million Australians in or nearing retirement.
Quicker SOAs
Part of Jones’ QAR response was the rationalisation of Statements of Advice documents. However, the Iress research has found technology has boosted practice efficiency over the past two years.
The average time to produce documentation had decreased across the board with automation being attributed as the key time saver in the report.
Practices that ran a fully automated review process were, on average, three hours faster at preparing client review documents than their peers relying on manual processes.
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Documentation generation efficiency |
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| Hours taken 2021 | Hours taken 2023 | |
| Strategy paper for new client | 5.6 | 4 |
| Basic new client SOA | 8.1 | 6.7 |
| Complex new client SOA | 14.6 | 12.2 |
| Review documents for existing clients | 3.6 | 2.8 |
Source: Iress and Business Health.
Asked “if you could improve one aspect of your advice software, what would it be?”, 31 per cent of respondents said it was quicker SOA generation – the leading response.
The research found the most profitable practices built their processes around a single piece of advice software, rather than using multiple options in the business.
An interesting read and agree practice benchmarking is one of the best ways to identify strengths and weakness in your current operating model, this will require greater collaboration within the advice sector than we currently have.
“The research found practices that communicated with their top clients more than 10 times a year achieved a 114 per cent profitability increase.” Making this constant connection valuable for clients and efficient for practices to deliver will be a significant driver of success and again collaboration on the how will benefit clients, practices and the advice sector, helping to improve community perceptions of advice.