Research by Iress has identified a $550,000 profit margin gap between the “average” and the “best” advice practices.
The Advice 2030: The Big Shift report, published in collaboration with Deloitte, found “high performing” businesses have a 15 percentage point higher profit margin than the “average” practice, which equates to $549,646 more annual profit.
The “high performing” companies had an average profit margin of 40 per cent ($1.41 million), versus 25 per cent ($864,639) for the average. This is based on average revenue of $3.5 million across the board.
The report also shows Australia’s advice industry will grow by $2 billion in revenue (from $6.1 billion to $8.2 billion) from another 486,000 new customers over the next half decade.
Improved accessibility to advice could boost national savings by $2 trillion over 30 years, the report says. Australia’s financial assets stood at more than $7 trillion in 2023, having grown by 25 per cent in the preceding four years.
Iress executive general manager for wealth Kelli Willmer tells Professional Planner the key finding from the research is the “huge opportunity” for growth within the advice sector.
“There will be a significant amount of Australians moving into retirement by 2030 and they will all need advice and to help ensure their savings to date are utilised effectively,” Willmer says.
“It’s really important that licensees and advisers…harness every avenue they can to enable more Australians to be able to get advice. To do that it’s all through business efficiencies, and technology will support that and enable that.”
Iress noted Investment Trends research which identified the advice gap as being 11.8 million Australians and the tech provider says addressing this opportunity would require advice practices growing their customer base eight-fold.
“We certainly want to partner with the industry and help them scale up and help them meet this demand,” Willmer says.
However, the report found 21 per cent of surveyed advisers are likely to switch careers or retire in the next 12 months, and 74 per cent of those leaving are under age 40.
Additionally, the net number of advisers is estimated to only grow by 1.1 per cent per annum to reach 16,708 by 2029.
Willmer says to prevent these younger advisers from leaving, tech suppliers, licensees and the overall ecosystem needs to offer more support.
“Advice business can be quite restrained with the compliance requirements and regulation and that can become burdensome,” Willmer says.
“Where licensees and technology companies can help to lift that burden…and also to reduce the cost to serve advice, hopefully that would be the mechanism to allow younger advisers to stay in the industry and make their business profitable.”
The report warns that advisers need to react to seven megatrends or risk being left behind in the new era of advice.
“Businesses that fail to be proactive in response to recent changes stemming from the Quality of Advice review and emerging competition from superannuation funds, finfluencers and mobile application solutions may fall behind more aggressive competitors and struggle to adapt their traditional business models,” the report says.
These megatrends are the “skyrocketing” demand for retirement advice; the need for advice to protect against natural disasters and environmental volatility; out-of-reach home ownership; digital delivery of “everything”; growing demand for products and strategies to help with the intergenerational wealth transition; increased ESG interest from clients; and better advice on digital assets, such as crypto and other fintech innovations.
