The ‘magic number’ in advice practices

Two financial advisers have identified the “magic number” of advisers within a practice to achieve maximum efficiency and greater work/life balance.

According to Adviser Ratings, typical advice firms are sized between one and 10 advisers, with this segment accounting for over one-quarter of the entire profession.

But with challenges around practice management when you are running your own business, it can be more efficient for firms to increase their adviser numbers.

Money Management spoke with two advisers, who underscored why advice practices with between four to six advisers are at the “magic number” to achieve maximum efficiency and greater work/life balance.

Andrew Saikal-Skea, financial adviser and founder of Saikal-Skea Independent Financial Advice, provided his perspective as a single-adviser practice with three support staff.

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“A five-adviser practice is probably where you get the maximum efficiency, but without all of the management overlay of when you grow bigger than that. The magic number is probably about four or five advisers, I would say, where you get most of the gains before stepping into a completely different business model,” he described.

Agreeing with Saikal-Skea, Money Management also spoke with Jurgen Schonafinger, director and financial adviser at Templeton Advice Group, which has four advisers and two staff completing their professional year.

“I think that number of four to six advisers is perfect. With that number, you’ve got plenty of cash flow to bring in other good people to do those non-client facing roles,” Schonafinger explained.

“Until you get to that number of four advisers, it remains very difficult. You generally find that one adviser will have to wear the compliance hat, another adviser will have the HR hat, and so on.”

In particular, both advisers emphasised the work/life balance that can be achieved with this “magic number” of advisers.

As a single-adviser practice with a senior associate, an associate and a senior client service officer, Saikal-Skea is hoping to take on additional advisers to prevent key person dependency when he takes time off, for example.

He described: “It’s very hard to go on holiday or just take any time off from your practice, because you’re the only person that can give advice.

“So the advantages of scaling up undoubtedly give you cost-efficiencies through economies of scale. But even more than that, you get a lot more flexibility to be able to give a better service for your clients and there’s someone else there when you’re away, so you can actually have a better life as an adviser.”

Saikal-Skea previously spoke with Money Management about the benefits of scaling up as a boutique practice and hiring associate staff. Namely, this has enabled him to reach a “far more efficient place” and provide a deeper level of support to clients than if he were on his own.

Schonafinger agreed, also noting how scaling up from a single-adviser business to four advisers has enabled him to enjoy holidays and focus more on providing advice to clients.

“I think you need to be a decent size so you can have a life, more so than anything. I could run a one-man show, but there’s so much responsibility and so many things I’d need to be on top of all the time that you’d never be able to go on holidays. You would always be worried,” he said.

“Having scale is more about: What life do you want to create by having this business? Is it one where you actually want to have a nice lifestyle? If so, I think scale becomes important because you’ve got other partners who have the same thinking as you. It does become increasingly impossible as a one or two-man band to do that effectively and also have a life.”

Once Templeton Advice Group reached the four-adviser mark, this also enabled Schonafinger to employ a practice manager who oversees the behind-the-scenes operations of the business.

“They take a lot of the responsibility from the advisers, who can then just concentrate on seeing clients and generating revenue,” he added.

The two advisers’ comments echo that of Paul Barrett, chief executive of AZ NGA, who previously argued that small-to-medium practices need to “supercharge” their capacity to service more clients, which means getting significantly bigger.

AZ NGA recently acquired the minority stakes of 16 advice practices from AMP. One of the reasons it was chosen was, AZ NGA was able to provide access to capital to help those practices grow and scale up.