In many fields of endeavour there’s a gap between the very best performers and the rest of the pack, but in financial advice that gap appears to be a gulf.

The performance difference between so-called high-performing firms and other advice firms is real and it helps to explain why the investment capital looking for opportunities to buy into advice businesses is choosy. The difference between a merely good asset and a great asset is stark.

As Professional Planner reported last week, Macquarie Business Banking’s 2023 Financial Advice Benchmarking Report reveals that the differences between the best firms and the rest is not due to some fluke or good fortune on the part of the firms’ owners. It’s due to considered planning and fine execution.

And as a result, high-performing firms generate three times as much profit per business owner compared to the rest of them.

The report distils the secret of high performance down to five key things:

  • Defining and documenting a value proposition.
  • Attracting and retaining great people.
  • Ensuring client-facing people are doing the most valuable work.
  • Charging appropriately.
  • Having a clear strategic direction.

Some of these things are interdependent. A firm can’t easily charge appropriately for the services it delivers if its value proposition isn’t clear, and understood by clients. It can’t necessarily have its client-facing people doing the most valuable work if it hasn’t also hired and retained great people in the business to support them.

The Macquarie report says nine out of 10 high-performing firms have a clearly documented value proposition, compared to three-quarters (76 per cent) of other firms. But the existence of this documentation is only part of the story. High-performing firms with such documentation generate on average about $84,000 (or 27 per cent) more profit per business owner than other firms, even though they also have their proposition documented.

Like any plan, having it written down is one thing. Executing the plan is another thing altogether.

The Macquarie report was the second in the space of a couple of a weeks to highlight the differences between good and great advice businesses.

National Australia Bank’s 2024 Accounting & Financial Planning Report concludes that the advice profession overall has a bright future, but clearly not all advice firms are created equal. The report says two in 10 (21 per cent) advice firms reported satisfactory growth in the previous 12 months, while almost three in 10 (29 per cent) of firms experienced very good revenue growth.