As boutique financial planning businesses demonstrate resilience and high optimism after the negative effects of the global financial crisis (GFC), the main focus now is achieving business growth.
Fiona Mackenzie, senior practice consultant at Macquarie Practice Consulting, says the 2011 Financial Planning Practices Benchmarking Survey reveals businesses are more optimistic than she expected but had remained stable over the past four years.
“They haven’t grown a lot and that’s been one of the challenges,” she says.
“They feel like, ‘We’ve come along well, now where to from here?’”
The past three reports captured responses from boutique practices that hold their own Australian Financial Services Licence (AFSL) however, this year’s survey included a number of mid-tier businesses – small firms operating under a dealer group AFSL.
“So we’ve got a comparison point there for the first time and then we have four years of data on the boutique financial planning space,” Mackenzie says.
“Now that we’ve got the four years of boutique or ‘own AFSL’ firms [studies], we can see how they’ve tracked through this quite challenging period and it’s really all business issues.”
She says that while boutiques are showing resilience in their gross profit margins, they are tackling the challenge of overhead costs.
“They tend to be around half of their revenue so this year they’re at about 53 per cent. That cuts away at their profitability quite quickly.
“What they’ve been trying to do is be really sensible with their cost management so phone contracts, research, travel and those sorts of things that they have control over, they’ve been managing quite well.”
The focus on business growth has coincided with the returned levels of optimism, according to Mackenzie.
The survey states “87 per cent of own AFSL practices felt either positive or very positive about the future and those with a dealer group AFSL were not far behind at 72 per cent”.
“Through the GFC they had to obviously manage their clients very carefully, rather than trying to attract lots of new clients during this period,” she says.
“Investors have also been very nervous and haven’t been rushing to invest so attracting new clients and building that revenue base has been a challenge.”
Survey responses from boutique and independent advisers over the past three years also highlighted the difficulties still felt in articulating the value of advice.
“It is challenging to [make] that really clear because each client wants a slightly different outcome out of the financial planning process,” Mackenzie says.
“So they have to be able to articulate that upfront in a way clients can understand.
“That’s something that they’ve identified as really important in the business.
“It’s still an on-going challenge.”
Mackenzie says the top challenges in the next 12 months are maintaining profitability, getting their heads and adapting to legislation, attracting new clients, and hiring and retaining good staff.
She says the 2011 survey provides strong insight into the boutique advisory business segment, “but it’s also useful for financial planners themselves because out there, they don’t necessarily know how they’re going versus the rest of the industry so it gives them that insight as well”.
The 2011 Financial Planning Practices Benchmarking Survey was formulated from the responses of 109 Australian financial planning practices.
