The advice practices generating $5m in revenue
Over half of advice practices are achieving profit margins of 20 per cent or more, according to Adviser Ratings, but practices with more than five advisers are seeing a significant revenue boost.
Data from its upcoming 2025 Australian Financial Advice Landscape report found advice practices are seeing a “surge” in the profitability of their businesses.
The number of practices achieving profit margins of 20 per cent or more now sits at 51 per cent, up from 47 per cent last year.
But there are substantial differences in the profitability that can be achieved once a practice has scaled up its business.
Solo adviser practices generate $606,660 in revenue, Adviser Ratings said, but this rose to $5.1 million if a firm had five or more advisers.
Some 41 per cent of practices successfully achieved a revenue increase of more than 15 per cent year on year and only 3 per cent of practices reported a decrease in their revenue.
“The correlation between revenue and profitability is particularly stark. Among practices generating less than $250,000 annually, 58 per cent report no profit whatsoever. In contrast, practices with revenue between $1.5 million and $2.5 million show remarkable financial health, with 46 per cent achieving profit margins of 30 per cent or more,” it said.
“However, the data also reveals that profitable practices exist across all revenue bands, suggesting that effective business management can overcome some of the challenges smaller firms face.”
Those practices that are achieving 40 per cent or higher profit margins are those that have “fundamentally transformed” their approach to business and view themselves as business owners rather than advisers. They also embrace strategic growth, technology integration and innovation, and sophisticated business management.
While there are demonstrable benefits to scaling up, research by Zenith Investment Partners earlier this year found advice practices aren’t always ready to take the leap.
Overall, 67 per cent of practices acknowledge scaling advice will have a positive impact on their business, yet only 42 per cent said they feel prepared to take the next step. This falls further to 37 per cent of practices when considering those in the boutique advice structure (those with less than 100 clients), although 72 per cent said it will have a positive impact on their business.
“Larger practices report a higher perceived impact and readiness across most trends, while boutique and moderate-sized practices demonstrate lower preparedness, particularly in scaling advice and adapting to regulatory changes,” it said.
“These figures aren’t just statistics; they demonstrate that financial advice practices are becoming experts in helping clients meet their goals and objectives, and they demonstrate an ability to run a successful small business. It is no wonder that private equity is flooding into the profession.”
AUTHOR
Laura Dew
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