Client referrals key to optimising advice practice growth

Financial advisers who optimise client referrals to achieve organic growth will be best placed for success in 2025, according to Dimensional, and could attract attention from overseas acquirers.

The firm’s 2024 Dimensional Global Advisor Study questioned 796 firms globally, including 55 in Australia and New Zealand. 

Speaking to Money Management, Nathan Krieger, head of global client group Australia, discussed recent research into high-performing advice firms. These are those firms in the survey who sit in the top quartile for revenue, client and employee retention, profit margin and revenue per adviser. 

“Those high-performing advice firms in Australia are up there with the best in the world which is pleasing to see.”

Looking at the top channels for new client growth in the future, the respondents identified referrals as being their biggest success, with 38 per cent of high-performing firms driving growth via this channel. This was followed by adviser business development and digital marketing.

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Krieger said: “Referrals are a good source for new client growth, both from existing clients and from centres of influence.

“Organic growth is becoming a real focus now whereas it fell away for a while amid all the compliance and regulation changes.

“M&A has been very successful and there has been a lot of movement, but those high-performing firms are keeping the engine running for organic growth via referrals. M&A and bolt-on acquisitions are all very good, but it only has a short-term uplift. You need to have a good grounding to grow client numbers organically as well."

He specified firms should be formalising their referral programs and educating staff on how they can generate new referrals, what to ask existing clients, and what they could be asking. 

Earlier this year, both WT Financial and Centrepoint Alliance specified they were looking at the organic growth rather than further M&A activity. 

Keith Cullen, WT Financial managing director, said earlier this year: "While the company has now surpassed the critical scale it was striving to achieve through its acquisition and renovation strategy and its focus is primarily growth in profits of itself and the practices it supports, the directors will continue to consider corporate opportunities on their merits as and when they arise.”

Meanwhile, Centrepoint Alliance chief executive, John Shuttleworth, is expecting to grow the licensee via licensee switching particularly when other rival firms enact their own M&A.

Successful client generation can also mean the firm is an attractive firm for future M&A, some of which are slated to come from overseas in 2025.

In September, it was announced that US investment manager Oaktree Capital Management – which has $294 billion in assets under management – had entered into a strategic growth partnership where Oaktree would invest $240 million in AZ NGA.

In a similar deal, US global private equity player KKR announced in May that it would be acquiring the corporate trust and wealth management business of Perpetual.

“Overseas firms are absolutely looking to Australia, they are seeing opportunities there from the advice gap, the superannuation system and lower valuations compared to firms overseas. There is no doubt this will expand next year; overseas firms are observing what is happening here and finding that attractive,” said Krieger.

On the other hand, Krieger said the biggest challenge constraining firms is their capacity limitations around human capital. The number of advisers has been declining, as per Wealth Data, there are around 15,500 advisers currently, and the supply of new entrants is insufficient to boost this dramatically. 

“Human capital is a challenge. People haven’t been aspiring to work in financial advice, but we are seeing more new entrants now. There are significant capacity limitations due to the legislative burden, and technology hasn’t yet solved this which is limiting the ability of firms to deliver advice. 

“We have seen improvements in workflow processes, but not all shiny technology is useful. It is useless unless it is being used in the right way. To be a high-performing firm, they need to put strong processes in place, and technology is an add-on to that – the processes need to be in place first though.”