FPA Dealer Principal Conference – Planning industry faces growing pains
The financial planning industry is about to go through a phase of uncertainty in its evolution into a major profession, says Jim Stackpool of Strategic Consulting and Training (SCAT).
"As the industry grows, it goes through wobbles in the cycle," he says.
When the industry started in the early eighties, principals faced a rocky path.
Companies were often one-man bands, says Stackpool.
The nineties saw the administration stage of growth with associated ups and downs. Stackpool now sees financial planning developing into the management stage, which has seen strong returns for the principals of firms that sold out.
However, the returns are now going to go through a 'wobble' period, he warns.
"Principals need to grow a bit smarter as there is still a high dependency on them in a practice, as well as low average income per client and low fees as part of the revenue mix," he says.
According to SCAT's Dashboard Survey, the net profit per owner working-hour is 95 per cent higher in a low principal-dependency firm.
The low-dependency firm earns $181 an hour while the high-dependency firm earns $93 per hour.
The low-dependency firms earn $396,000 per revenue earner while the high-dependency firms earn $278,000, a 42 per cent difference.
"When a planning firm starts to put on more people, they start to get more profit," Stackpool says.
Fee-based financial planning practices are also much more profitable, according to the Dashboard Survey.
The fee-based service firm makes a net profit of $299,000 per principal. By comparison the average firm, with a mix of commissions and some fees, makes $185,000.
A fee-based firm also requires fewer clients to achieve the same goals. The average firm has 677 clients per revenue earner, while the fee-based organisation has 212.
Stackpool admits the survey covers just 750 advisers and wants to see more take part to give a broader picture.
He also suggests the survey could be used to rate advisers, similar to fund managers - a suggestion that was poorly received by the delegates.
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