Report sheds insights into profession

By Jayson Forrest - Managing Editor  - IMAP Perspectives

Terry Bell Business Health

Terry Bell Director Business Health

72% - Planners without a written succession/buy sell plan
29% - Principals who have a three to five year strategic plan
47% - Practices have no clearly defined client value proposition
530 - The average number of clients per practice

Source: Future Ready VIII report.

Report sheds insights into profession

With strong regulatory headwinds likely to continue for the financial planning profession, unless business owners can quickly develop a very clear plan to address the key issues in their firm, sustained success remains uncertain.

This was one of the key findings from Business Health’s Future Ready VIII report, which provides a detailed insight into the health of Australian financial planning practices and their preparations for the future.

According to Business Health owner, Terry Bell, the analysis in the current Future Ready VIII report also revealed that even before business owners develop their business plans for the next few years, they will first need to decide if they are staying or leaving the profession, with analysis revealing that one-quarter of owners surveyed indicated they would be looking to exit their business within five years.

The following are  5 other key takeouts from the Future Ready VIII report’s analysis:

72 per cent of planners having no written succession/buy sell plan.

Succession planning

Bell said the advisory world had been dramatically disrupted since Business Health produced its last analysis in 2017. However, despite this disruption, the Future Ready VIII analysis revealed that planners were still unprepared with their succession planning, with 72 per cent of planners having no written succession/buy sell plan.

“Of those who do, 62 per cent have identified a successor who has agreed, while 67 per cent have arranged funding. However, only one in 10 practices have an effective succession plan in place today,” Bell said

Truly successful business owners ....... actively seek the opinions and thoughts of others

A shift in mindset

The report clearly revealed that while almost all principals are skilled financial planners, they need to evolve their thinking and their perspective to that of a successful business owner.

“In the financial services world of tomorrow, successful business owners will have developed a very clear picture of what longer term success looks like for them (currently, only 29 per cent of principals have a 3-5 year strategic plan) and map out a roadmap that details how this will be achieved (66 per cent of practices do not have an operational business plan for the coming 12 months),” Bell said.

Although most business owners retain a very bullish outlook for what they can achieve in the coming 12 months, Bell said it was alarming that most have no real plans as to how these results will be delivered.

“Truly successful business owners openly admit they don’t always have all of the answers and they actively seek the opinions and thoughts of others from outside their firm. They meet regularly with people they trust and respect and are always open to different views and ideas.”

Importantly, these business owners look for someone to hold them accountable to implement their plans and to monitor their progress. However, the report found that only 44 per cent of practice owners have an external ‘sounding board’, who they regularly consult with for objective business advice.

Having a defined client value proposition is essential

Client centric

When it comes to showing demonstrable proof of their client centricity, many advice practices seemingly have a huge disconnect between what they say, what they offer and what they actually deliver. The report’s findings revealed:

  • Almost half (47 per cent) of the practices do not have a defined client value proposition and may struggle to clearly articulate the true value they deliver.
  • Two-thirds (67 per cent) do not communicate with their best clients 10+ times per year.
  • Only one-in-three (32 per cent) practices actually seek feedback from their clients.
  • Over a quarter (27 per cent) of the firms have not identified their best clients and offer them a differentiated level of service.
  • Just 26 per cent of businesses are looking at expanding their suite of solutions/range of services in the coming 12 months to better cater for their clients’ changing needs.

Scale is key to survival

With the ever increasing costs of running a business, not surprisingly, the base level costs of running an advice practice continue to increase to the point where practices with gross revenue of less than $500,000 are struggling to deliver an acceptable return. 

“The average notional profitability for these ‘sub-scale’ firms was just 10.1 per cent and raises the question: Is this level of return commensurate with the time and effort the owners are investing and the business risk being taken?,” Bell questioned. 

According to Bell, this presents the owners of practices with a lower level of revenue with a significant challenge – how to acquire scale. 

“In our view, organic growth through individual efforts won’t be sufficient. For many, the answer must lie in buying, selling or merging. But finding the right ‘fit’ between businesses and being prepared to perhaps modify long held views, may prove a bridge too far for many.”

Unintended consequences

Perhaps the most significant finding from the Future Ready VIII analysis was the dramatic drop in the number of clients per practice. The analysis revealed that the average number of clients per practice dropped in the last two years from 715 to 530, with the average number of ‘A' class clients per practice decreasing from 105 to 79. 

“Despite a 26 per cent reduction in client numbers, the overall ‘notional’ profitability for firms has increased slightly from 27.0 per cent to 28.2 per cent. It seems that advice firms are becoming clearer on who they can best serve and continue to build their businesses around these clients.”

However, Bell added: “It would be a great shame if one of the major consequences of the past few years of regulatory change is that quality financial advice becomes available only to higher net worth Australians. For some planners, this may present a wonderful business opportunity if they can determine how to profitably provide ‘non high wealth’ Australians with the advice they need.”

The full Future Ready VIII report is available from Business Health.

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