Eric Blewitt (left) and Rod Bertino

Financial advice is a terrific business to be in, not despite the turmoil of regulatory upheaval and an exodus of advisers since 2019, but rather, because of it. The two things which have created so much angst among practitioners are the same things that have also set the profession on the path to a rosy future.

Increased regulation has raised barriers to entry, and the departure of advisers has constricted supply of advice at a time when demand is increasing thanks to an ageing population.

Both are great news for the advisers who remain, and insights provided to Professional Planner by leading consulting and research firms underline the fact that advice is a healthy business, including:

  • Profit margins have increased over the past two years;
  • Ongoing advice fees have increased, year on year;
  • Ongoing advice costs have remained static;
  • Clients per adviser have increased modestly, year on year;
  • Clients are overwhelmingly willing to refer family and friends; and
  • Most advice firms plan to take on additional staff to support growth.

There’s more good news. Minister for Financial Services Stephen Jones moved towards the end of last year to respond to the Quality of Advice Review with a series of measures that should reduce red tape and help businesses deliver advice more efficiently – which is to say, at lower cost to the business.

Jones would prefer to see the cost of advice to consumers decline as a result of the measures, telling Professional Planner last year that “advisers have been saying for some time now, if you reduce the red tape we’ll be able to provide more affordable services”.

“Okay, we’re going to reduce the red tape. Over to you,” Jones said in a media briefing last year when he announced the first post-QAR draft legislation.

Last week the Australian Law Reform Commission released its five-years-in-the-making review of the Corporations Act, with a raft of recommendations – 58 in total – that could radically reshape the regulation of financial services and deliver even greater efficiencies to advisers and advice practices. Action by government on this review, however, is by no means certain, and in any case, meaningful revision of such a complex piece of legislation could take years.

Meanwhile, advice businesses simply power on. Right now, according to Business Health, the average profit margin for advice firms is 28.4 per cent, and that’s up 4.8 percentage points, or 20 per cent, on the level of two years ago. Things are already generally moving in the right direction, even without the fillip of regulatory simplification.

Think like an owner

But with these improvements comes a particular challenge, according to Business Health founder Rod Bertino.

“These businesses are genuinely providing strong results for the owners,” Bertino says.

They’re becoming businesses that are worth a lot of money – so advisers “need to be thinking like business owners, not just talented advisers”, he says.

Investment Trends chief executive Eric Blewitt says more than a third (38 per cent) of advice firms say their profitability has increased year-on-year, and these increases are attributable to three main actions: increasing fees charged to clients; applying strict cost disciplines, so more revenue flows to the bottom line; and improving systems efficiency and support.

Investment Trends’ data suggest economies of scale for advice firms really kick in once there are more than five advisers in the practice – revenue per client jumps, but costs do not increase nearly as much, despite the presumed need for more support staff.

The economics of ongoing advice
No. of advisers Revenue
(per client)
Costs Margin
Up to two $3900 $2247 $1653
Three to five $3900 $2174 $1726
More than five $7700 $2568 $ 5132
Average all advisers $4700 $2270 $2430
Source: Investment Trends Adviser Business Model Report, 2023.

Blewitt says advisers have on average increased ongoing advice fees by 25 per cent year-on-year, to $4700 per client. At the same time, ongoing advice costs have held steady.

The structure of fees matters too, with Blewitt noting that “advisers in more profitable practices tend to derive the bulk of their revenue from fixed fees, whilst conversely, those in less profitable [practices] are more likely to have asset-based fee arrangement”.

Business Health’s research shows that clients simply love their advisers. It says 87 per cent of advisers’ clients are willing to refer family or friends to their adviser. That’s a great potential pipeline of new clients, all without spending a buck (or spending very little) on marketing.

Bertino notes that generally, the clients referred to advisers tend to look very similar to the clients doing the referral. That is, if existing clients are aged over 60, or retired from full-time employment, or earning less than $75,000 a year then the new clients coming to a firm are likely to look broadly similar. In fact, Business Health data describes this as a very significant proportion of existing advisers.

Bertino argues this means advisers with an ageing client base either need to develop services that cater to this older demographic or explore ways to attract younger clients.

“But when clients are asked to rate their adviser on how well does the range of solutions meet their needs, it ranks third-bottom, ahead of communication and the review process,” Bertino says. “Only 24 per cent [of advisers] say they are looking to expand their range of services to cater to this demand.”

Fully occupied

Business Health says the average adviser holds 6.5 client meetings a week, or an average of just over one a day, and is supported by 1.5 administration staff. Most advisers report being fully occupied, which begs the question, Bertino says, of whether they’re working enough on the right things.

Employing additional administration staff could help advisers free up time to do more client-facing and revenue-generating work. Being able to hold two more client meetings a week would represent a 30 per cent increase in client-facing time.

According to Investment Trends, most advisers have not increased client numbers significantly. The average number of clients per adviser has risen by about 5 per cent, to 120 per adviser. The increase is attributable as much to lower client attrition in the past year as it is to excellent client acquisition, Blewitt says. In this context “client attrition” measures the number of clients from whom no revenue was received in the past 12 months.

Blewitt says there is a strong unmet advice need, particularly among high-net-worth individuals (HNWI). Investment Trends’ research says the number of HNWIs – individuals who have $1 million in investable assets, excluding the family home and superannuation, except where they have a self-managed fund – has increased year on year, from 625,000 to 635,000.

Blewitt says that in 2022, around 200,000 HNWIs paid a total of $1.25 billion in advice fees. The number of HNWIs paying fees dropped to 180,000 in 2023, but total fee revenue jumped to $1.52 billion.

Business Health’s Bertino says more than two-thirds (68 per cent) of practices say they’re looking to add staff to support business growth.

Bertino suggests demand for great staff may run into supply issues and a task facing advice business owners wanting to attract or retain the best people is to create a compelling reason to work there – either to join from another firm, or to enter the profession for the first time. Bertino says the flipside is that with demand likely to rise, retaining good staff is also a priority.

Overwhelmingly, the data suggest that advice is a growth business. In the welter of reforms, reviews, inquiries, regulation and general upheaval, it can be easy to lose sight of that. But advice businesses generally are doing well both financially and in terms of relationships with clients, and with the focus now turning to how the convoluted regulation of the sector can be simplified, the future is potentially rosier still.

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