Advice firms need 25pc annual fee rises to be sustainable: Peloton

Advice firms will need a 25 per cent increase in ongoing fees sustain desirable shareholder returns, according to data and analysis from Peloton Partners.

The consultancy group based the calculation on maintaining shareholder returns of 40 per cent, in line with industry research on what “high performing” advice firms are achieving.

The firm found that while small fee increases are easier to implement, they are rarely sufficient to change business outcomes, but larger increases will face higher chance of client resistance if value isn’t well articulated.

The findings come as Adviser Ratings released its latest Advice Landscape report showing the average advice practice revenue has increased 40 per cent since 2023 to $674,000 per practice in 2026, with an average firm profit margin of 23.5 per cent.

The AR data found that 13.7 per cent of advice practices have profit margins of over 40 per cent.

The median ongoing advice fee increased 3.6 per cent to $4837 compared to last year’s data and up from $2510 in 2019, although industry experts have attributed the average increase to lower balance clients no longer receiving advice.

Peloton found that over 20 per cent of practice surveyed achieved the strongest alignment to profit, sustainability and valuation.

Peloton Partners founder Rob Jones tells Professional Planner the figure is based on the profitability of most firms in the Australian market sitting between 20 per cent to 29 per cent.

However, this requires a compelling client value proposition behind strong adviser conviction and confidence to assure value for money.

“What we found is that in order to target where they should be, as you know, highly, risky small businesses in a highly-regulated industry… around that 40 per cent [profit] mark they often need a 25 per cent recurring revenue increase,” Jones says.

“That’s an average, for some firms it’s 10 [per cent] and other firms it’s 40 [per cent]. It really just depends, but we work backwards to say what’s a sustainable profit for this business [and] measure that up against their existing profit and the gap often comes out as a reasonably large gap to where they want to be.”

A 5 per cent annual increase – just above CPI levels – would provide minimal revenue uplift and limited profit improvement which can help protect short-term revenue lines.

While this was also easier to communicate to clients, it may leave practices behind as business costs rise in other parts, including software, staffing and office leases.

“At a lower rate of change they don’t have to articulate much,” Jones says.

“They literally can execute a 5 per cent change, but when it gets to 10 per cent it starts to get a little bit challenging and we found that many firms will create exception clients and sometimes that can be quite a lot.”

Jones says the 10 per cent range requires a proper pricing framework to be in place.

“You’ve got to have some scripts, you’ve got to put advisers through a value articulation process and training and we spend a lot of time doing that,” Jones says.

Jones defines two scenarios: a “10 per cent guesswork” and a “10 per cent structured” model. The latter requires stronger adviser training, scripts, and pricing tools to articulate the value clients receive.

“A 10 per cent structured process is totally different,” Jones says.

“If you’ve got a 10 per cent structured process, you’ll get 95 per cent of your clients. If you’ve got a 10 per cent guesswork you’ll typically apply that, with exceptions, to only 60 per cent of clients. Therefore, it doesn’t have the same effect. “

Although advisers may feel they’d be at risk of pricing out and losing long-term clients, Jones says 99 per cent of clients will stay with the firm.

“Clients aren’t the issue, it’s more so advisers feeling they’re not worth that increase or that their clients probably won’t ever entertain that,” Jones says.

“Clients do, when a framework is put to them fairly, honestly, transparently and with clarity. The client isn’t the problem and that’s what we’ve found overwhelmingly.”

The rising cost of doing business due to the confluence of inflation during and after the Covid-19 pandemic, along with a heavy regulatory burden post-Hayne royal commission has meant the average advice fee has almost doubled over the past seven years.

Research from CoreData presented at last year’s Professional Planner Licensee Summit found 40 per cent of advice firms have a 35 per cent profit margin.

Previous data from the researcher found that practices considered business costs to be the number one business concern.

While fee rises are one lever for advice practices to pull, Jones says clients should not be paying for inefficiencies in the business either, whether that’s overstaffing or technology provider inefficiency.

“We look at any obvious cost-out opportunities,” Jones says. “Overwhelmingly the evidence isn’t in those two factors.”

Fee increase level	Main outcome	Typical trade-off	Best suited to
5% (CPI)	Minimal revenue uplift; limited profit improvement	Easy to communicate but usually too small to change business outcomes. When repeated YOY clients resist.	Short-term revenue protection
10% (guesswork)	Moderate revenue improvement	More client resistance without fully solving profit pressures but client exceptions increase reducing outcomes	A modest pricing reset
10%+ (structured)	Meaningful improvement in profit and valuation	Requires stronger adviser training, scripts, and pricing tools to articulate the value clients receive.	Firms seeking a serious reset
20%+ (achievable)	Strongest alignment to profit, sustainability, and valuation	Needs a compelling value narrative with strong adviser conviction and confidence paired to a disciplined implementation process – very impactful results	Long-term sustainability and performance reset
Source: Peloton Partners.