After several years of declining profitability, advice practices have recorded an uplift, buoyed partly by slightly fewer staff and a lift in revenue per client, according to analysis from Business Health.
The firm says that profitability of Australian advice practices has increased from a 2021 low of 24% to now be at 28%.
Business Health, which will be releasing its full analysis on the business health of Australian advice practices later this year, says the factors contributing to the uplift are:
- Fewer staff
- No noticeable change to client numbers
- Revenue per client has increased
- An emphasis on technology
- Business owners deciding it’s time to get on the front foot
Fewer Staff
Business Health says that 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,” it notes.
As to why less staff, Business Health says 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 workforce, and staff are appreciating the opportunity to balance working from home and office.”
It has also noticed an increasing level of interest around outsourcing “…still relatively early days for most, but certainly more talk.”
Client Numbers Unchanged
Business Health says there has been no noticeable change to client numbers and that “…clients remain satisfied and settled it seems, happy to stay and refer their adviser.”
Its latest CATScan (client satisfaction survey) analysis found “…87% of clients are willing to refer their adviser, while 91% are expecting to maintain an on-going relationship.”
However, it offers a cautionary word “…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 … ‘revenue per client’ metric has seen a 10% increase to now average $3,850 per client…
Revenue Per Client
Business Health also notes that while client numbers have remained steady its “…‘revenue per client’ metric has seen a 10% increase to now average $3,850 per client.”
It says 74% of practices have reviewed their fee levels/structure over the past 12 months “…another contributor to improved profitability and a ‘best practice’ we hope will be continued.”
Emphasis on Technology
The firm says that enabling much of the above has been a continuing emphasis on technology, noting that “…it seems practices have invested time wisely and are employing technology much more effectively throughout their business.”
It says an important contributor here 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.
Getting on the Front Foot
As to the last of its “big five contributors”, Business Health believes 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.”
It says 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’.”
