Although revenues are on the slide, financial planning practice operating profitability has actually risen in the past year, while advisers also indicate they are optimistic about the next 12 months, according to Macquarie Practice Consulting's 2012 Financial Planning Practices Benchmarking.
The survey also found boutique Australian Financial Services Licences (AFSLs) were more profitable on average than dealer group practices – this was perhaps ironically due to scale benefits because boutiques tended to have more planners and staff per practice, thus spreading costs over a greater number of advisers, according to Fiona Mackenzie, Associate Director, Macquarie Practice Consulting.
The improved profitability (from about 17 per cent to 20 per cent in the past five years) is due to a focus on overheads through streamlining the back office, negotiating better rent, or not replacing support staff if they left. Salary costs had been well maintained, although the average salary of advisers had gone up slightly in both absolute and relative terms, Mackenzie said.
"All those things they have some control over they've been shaving down. Overheads have gone from 50 per cent of revenue to 41 per cent," she said.
Advisers were also feeling optimistic, with 71 per cent saying they felt positive or very positive about the next 12 months.
"There's change coming through, and where there's change there's opportunity," Mackenzie said. Pressure on the industry is bringing professionalism to the fore and those who are confident in that are seeing it as a positive, she said. 70 per cent are expecting their profits to increase in the coming 12 months, she added.
There had been a trend away from managed funds in the past five years to more direct investments. Average funds under advice (FUA) allocated to managed funds had come down from 62 per cent to 45 per cent in recent years while direct shares climbed from 25 to 29 per cent, direct fixed interest and cash almost doubled – up from 9 per cent to 18 per cent – and other direct investments such as property rose from 4 per cent to 9 per cent. The trend was greater among boutique AFSLs, which have more flexibility to adopt these kinds of investments, Mackenzie said.
When accessing direct equities, 29 per cent of advisers chose the shares themselves, 27 per cent used exchange traded funds and 26 per cent managed the investments with the support of a broker. Firms are still working through the practicalities of doing this, she said.
Of the 304 respondents to the survey, around 30 per cent came from boutiques and 70 per cent were dealer group practices, although none were aligned to the major institutions. The average practice had 481 clients and 2.6 advisers, or 185 clients per adviser. Average FUA was $93 million per practice or $35 million per adviser. For boutique AFSLs, that was about $160 million per practice – although that was down from $180 million five years ago.
Average annual revenue per client has come down from around $2,500 five years ago to $1,710 in the current survey.
Although many advisers indicated they were looking at branching out in terms of revenue streams, the majority of revenue was still derived from planning and insurance – other services such as mortgage broking and share broking were minimal.
Mackenzie said Macquarie Practice Consulting was encouraging its clients to focus on the client value they deliver and doing that well, then if there are other things the client needs then work on building referral relationships rather than trying to plug that into the business because managing that one-stop-shop type of business can be challenging.
