We’ll be releasing our full analysis on the business ‘health’ of Australian advice practices towards the end of this year (the tenth in our series over the last 20 years) but, in the meantime, we thought it timely to share some of the high-level trends and findings we’re noticing.

After several years of declining profitability, practices have recorded a slight uplift, increasing from a 2021 low of 24% to now be at 28%.

This is, of course, the one measure that every business owner needs to focus on and while what is an acceptable level of profit will vary (depending on the business itself – its operating model, market environment/positioning, stage in the business cycle and so on), it’s hard to disagree that the bottom line for overall business success and ongoing long-term sustainability must be its profitability.

So this finding is very encouraging. As to what’s contributing to the uplift:

  • On average, practices are employing slightly fewer staff than they were a few years ago; 5.8 staff down from 6.1 in 2021. Given that salaries are the largest part of most practices’ expense budget, any reduction in staff numbers is going to impact profitability. Why less staff? While it might be as simple as not being able to replace staff who have left, we prefer (hope) that a renewed focus on training/development of staff together with better utilisation of technology within the practice is contributing to higher productivity and generally a more settled and balanced work force. And, as a result, staff are appreciating the opportunity to balance working from home and office and are choosing to stay rather than go.  We’ve also noticed an increasing level of interest around outsourcing – still relatively early days for most, but certainly more talk.
  • There has been no noticeable change to client numbers. Clients remain satisfied and settled it seems, happy to stay and refer their adviser. In fact, our latest CATScan (client satisfaction) analysis tells us that 87% of clients are willing to refer their adviser, while 91% are expecting to maintain an on-going relationship.  But, a cautionary word here – these clients are, in the main, baby boomer+, looking forward to a well-deserved retirement. According to our CATScan analysis, 55% of advice clients are aged over 60, while 45% have already retired and this is converting into drawdowns, annuities and changing needs – a trend only likely to accelerate in coming years.
  • While client numbers have remained steady, our ‘revenue per client’ metric has seen a 10% increase to now average $3,850 per client, another contributor to improved profitability. 74% of practices have reviewed their fee levels/structure over the past 12 months – a ‘best practice’ we hope will be continued.
  • Enabling much of the above has been a continuing emphasis on technology, it seems practices have invested time wisely and are employing technology much more effectively throughout their business.  Another important contributor in this space has been the move by more practices to have an internal resource dedicated to managing the IT infrastructure of their business, 16% up from only 7% previously.  Apart from time and cost savings, these improvements are effectively creating time for client facing activities, the number of client appointments (in-person or virtual) per week has increased by 10% to 6.5 per adviser.
  • And to the last of our big 5 contributors… we believe that after a prolonged period of change and uncertainty, business owners are deciding it’s time to get on the front foot, accept the current environment and mould their practice accordingly. Many are driven by succession and transitional needs, for others its more about building their legacy. Whatever the motive, the bottom line is a positive move towards ‘just doing it’.

OK, armed with these observations, what to do now?

“What a business needs most for its decisions – especially its strategic ones – is data about what goes on outside it. Only outside a business are there results, opportunities, and threats.” – Peter Drucker.

Undertaking a benchmarking exercise for your business, seeking feedback from clients and staff, market experience/intel from B/PDMs, peer groups and your licensee are all good places to look for Drucker’s ‘outside’ data.

For your consideration.

Future Ready IX Report: Insights into the Australian Advisory Profession, Jan 2022

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