There are several reasons the future for financial advice businesses looks as bright as it currently does. At a fundamental level there is a simple supply and demand issue: demand for advice is increasing, while the supply of advice (the capacity of advisers to take on new clients, and new advisers entering the market), is limited.

But lifting the bonnet reveals some fascinating nuances. Growth can come in various forms: adding new clients, increasing advice fees for existing clients, improving internal processes, and mergers and acquisitions are some of them.

A report released this week by NAB, The People Profession: New Opportunities for Growth,  shows that the main avenues of growth open to advice firms are hiring, retaining and training staff (cited by 74 per cent of businesses); the deployment of new technology or systems within the business (59 per cent); and acquiring other businesses (47 per cent). Around a third (32 per cent) say they will launch new products or services.

Of those four things, only one – acquiring other businesses – would explicitly increase the number of clients serviced. It would also likely also involve taking on additional resources, including advisers, to do that. More clients plus more resources doesn’t necessarily result in increased profit.

The other growth paths are primarily focused on creating greater internal efficiencies – including the upskilling of staff. And the percentages revealed in the report indicate that some firms are pursuing more than one of these growth paths – hopefully as part of a considered and well-planned approach to growth, rather than a scattergun throw-it-and-see-what-sticks approach.

The report does expose a conundrum for those business owners planning M&A. It says that while 49 per cent of businesses plan to acquire “fees, equity or all/part of a business in the next two years” (which is a slightly different figure than the percentage quoted elsewhere, possibly due to the question being asked slightly differently in the survey underpinning the report), only 21 per cent of businesses say they plan to sell. Another 30 per cent say they are unsure.

The report says the equal number one priority when an advice practice considers an acquisition is “good terms of sale”, but it’s starting to look like a seller’s market, so prospective buyers might be advised to exercise caution.

The NAB report gives us a bottom-up look at what’s going on within advice practices, and helps to explain some of what we’re seeing happening in the licensee space.

In years gone by, the health of a licensee was measured by how many new advisers could be added to their licence. Some are still betting on that model as a growth driver, but in a market where adviser numbers are declining it can’t be true for all licensees.

Today, the measure of the health of a licensee is more likely to be how quickly its aligned practices are growing. Some forward-thinking licensees are working out how to share in that growth, moving away from fixed licensee fees to fees that reflect an advice firm’s revenue, and which will increase as the firm’s revenue increases. Others are developing plans to acquire equity stakes in practices, which will allow them to share in the profit derived from delivering advice.

For licensees with the corporate skills to manage it well, this looks like a winning strategy. Key to its success, however, is convincing advisers that the licensee has the advice firm’s best interests at heart, and that it can develop and deliver credible support services to help the practices grow.

The NAB report was based on in-depth interviews with 34 planning practices. Two-thirds (65 per cent) of the interviews were with equity partners in the advice firm; around a quarter (24 per cent) were with the firm’s sole owner.

Around a third (31 per cent) of firms most recently reported annual revenue of less than $1.5 million, with 21 per cent reporting revenue of $1.5 million to less than $4 million, 32 per cent reporting revenue of $4 million to less than $10 million, and 15 per cent reporting revenue of $10 million or more.