Fee hikes have created more “manageable” books, with the average number of clients per adviser now under three figures, according to research from Investment Trends.
The researcher’s 2024 Adviser Business Models Report showed the average number of active clients (defined as clients that are seen annually) per adviser was down from 120 to 99 year on year.
Additionally, the average number of passive clients decreased from 64 to 41, which meant the proportion of active clients increased from 65 per cent to 71 per cent.
“The ratio of active clients continues to increase…advisers are just keeping [clients] they actively engage with on a regular basis,” Investment Trends head of research Irene Guiamatsia tells Professional Planner.
Despite some shedding of clients, the survey found the “best-in-class” advisers reported a profit margin of more than 40 per cent, thanks to strict cost discipline and increased fees.
The survey found the average ongoing fee has increased 17 per cent, from $4700 to $5500, while upfront fees remained steady at $4000.
The findings come as recent data from Adviser Ratings and Iress also show the best practices in the country hitting that coveted 40 per cent profit margin, a frequently used benchmark for business success.
The Investment Trends research found that while fee increases have provided a “strong foundation” for the increased practice profitability, reducing costs has still been a key factor.
Just over a third (36 per cent) had a lower margin, of up to 19 per cent; and only 6 per cent of practices were “not profitable”.
The survey found 17 per cent of practices had a profit margin of more than 40 per cent, just over two in five (42 per cent) had a margin of 20 to 39 per cent.
“For a long period of time advice practices had seen that compression of [profit] margin but it’s also useful to position things in an absolute sense, which is what we’re doing here,” Guiamatsia says.
“Instead of saying year-on-year how has your profit changed, which is a metric we also see improve positively, here we’re looking at the net profit margin and we’re finding that advice practices are really good businesses to go into.”
In terms of a bigger picture takeaway, Guiamatsia says this provides evidence to the next generation of advisers the industry is financially lucrative.
“We’ve seen the top-line number of adviser exits, that has hopefully quietened a little and hopefully bottomed out of that trend,” Guiamatsia says.
In the adviser exodus after the Hayne royal commission, numbers decrease from around 28,000 to fewer than 16,000 in October 2022, with the number since stabilising at around 15,500 (15,493 as of 25 July according to Wealth Data).
“We want to next wave to really come in and strengthen the sector,” Guiamatsia says.
“At 99 clients per adviser, that’s still a lot of clients per adviser. We need more clients taking advice but…we need more advisers in the first place. Showing that advice is a profitable is quite a positive story to tell.”
The average level of new client inflows has risen to $6.6 million from $6 million in 2023, while the average funds under advice per adviser is now averaging $69 million, up from $63 million.
The report also found significant gender differences with how practices are managed – female advisers are 25 per cent more likely to adopt a “life-stage mindset” when advising on clients which focuses on pre-retirees and retirees.
Male advisers are more likely to describe their client focus based on their wealth bracket and are more likely to focus on affluent clients.
“Advisers are clearly re-shifting their business models to focus on certain client types. If you ask men advisers, they’re after affluent clients,” Guiamatsia says.
“Female advisers are more likely to say they’ll target pre-retirees and people who are [around] that life stage. I thought that was interesting to see the gender difference and how female advisers have a different lens in terms of how they see the type of clients they can support.”
Additionally, female advisers are more likely to cope with regulatory changes compared to their male counterparts with 65 per cent saying they feel “less unsettled by regulatory changes” compared to 45 per cent of males.
I don’t quite understand this whole notion of a “manageable book”.
100 clients looked after over 52 weeks. That’s a lot of spare time.
It’s become fashionable to be lazy.
Hardly a good result for consumers who have had their advice relationship terminated on them due to the government imposed red-tape and difficulty in helping lower fee paying clients.
ASIC, the government and ignorant organisations like Choice, have done a disservice to Australians.