High-performing advice practices generate 2.5 times the gross annual revenue and more than three times the profit of the average non-high-performing practice, and on average their advisers meet twice as many clients every week, new research has found.
Macquarie Business Banking’s 2023 Financial Advice Benchmarking Report reveals that these differences are not the result of some sort of accident or good fortune on the part of the high performers. They are more than four times as likely as other firms to have fully documented, frequently reviewed strategic and operational business plans.
The report says advisers at high-performing firms tend to focus more on revenue-generating activities, and greater internal efficiencies help them convert more of that revenue into profit. It stresses that high-performing firms are that way because their structures allow advisers to focus on what they do best – delivering advice to clients – and not because those clients are richer.
It says successful businesses have a profit margin of 56 per cent (before paying the owner’s salaries), while other companies have a margin of only 44 per cent. This suggests that successful firms earn more money because their advisers have distinct job responsibilities and a well-defined focus on their strategies.
The report also says high-performing firms invest heavily in talented people, and they have an average of 1.8 staff supporting each adviser, compared to 1.5 support staff per adviser for other firms.
“Given that financial advice is a relationship-based business, it’s not surprising that effective people management drives high performance,” it says.
“What’s more, in the same way that successful advisers have long-term plans for their clients, firms will also derive value from long-term people-planning, especially succession planning.”
Having a succession plan increases the profit per owner to $684,148, according to the report. Firms without a documented succession plan only have a profit per owner of $355,446.
“Interestingly, only 4 per cent of high performing firms had detailed documentation of succession plans; an opportunity to explore, particularly in a tightly contested talent market where succession planning can be key to motivate and retain high performing staff,” the report says.
It adds that it is important for businesses planning for the future to inspire talented individuals to excel in serving clients, the company, and their own success. Introducing these skilled professionals to business ownership can establish a strong and reliable foundation for the long-term.
“Succession planning is never considered too early, yet is often discussed too late,” it says.
Macquarie Business Banking head of accounting and financial services Olivia Ellis tells Professional Planner that the report’s findings demonstrate that succession planning is key, with a small percentage of firms having thoroughly documented succession plans.
“This shows us that there is a significant opportunity for more firms to focus on succession planning,” she says.
The time-honoured methods of succession planning and growth in the traditional professions of accounting and law are to introduce new partners into the practice or to arrange mergers with other firms. There are also some alternative options, such as having a current employee or another professional or firm purchase the practice.
Winning strategies
High-performing firms concentrate on the key measures that bring excellent results for clients, employees, and business proprietors, according to the report.
“Owners invest in high-capability advisers and make sure […] advisers are supported to drive higher revenue per client,” it says.
They collect actionable feedback from both their clients and their staff, and use these insights to improve their offer. They tier the service they provide to their clients and charge appropriately for advice across the respective tiers.
“Australian financial advice firms have navigated significant change in recent years, structuring their business to sustain a new economic environment,” Ellis says.
“From the data in the study, and with the overlay of the Quality of Advice review that is designed to make financial advice more accessible and affordable, the outlook is such that economies of scale will enable firms to achieve lower cost-to-serve per client and higher profit margins.”
She adds that the report’s findings show that firms should implement strategies for attracting and retaining top talent, optimizing skilled staff’s tasks, setting fair pricing based on delivered value, and creating clear succession plans.
The Financial Advice Benchmarking Report is based on research by Business Health, aggregating financial and operational data from 312 Australian financial advice practice leaders. It covers a diverse mix of AFSL holders, ranging from large institutions to boutique self-licensed practices, focusing solely on advice-related activities. Macquarie Business Banking considers these sampled firms as representative of the market, with most offering holistic financial advice services and a few specializing in investments or insurance.
