Salaries taking up almost half of advice firm revenues
Advice practices say practice profitability is strong, but staff salaries are taking up almost half of their revenue as the battle for talent heats up.
The latest By the Numbers report from Business Health, in association with the Financial Advice Association Australia, surveyed over 300 advice practices and found the shortage of advisers following an earlier adviser exodus, combined with only a small number of new entrants, has left the remaining advisers in a strong position regarding remuneration.
According to Adviser Ratings, some 264 advisers departed the sector in the final quarter of 2023 while there were 78 new entrants.
Business Health said the average revenue per client for a financial adviser is $3,852, which is an 8 per cent increase from 2020, and the average adviser has 141 clients. However, some 44.9 per cent of this revenue goes to staff salaries, respondents said.
"While your people are undoubtedly one of your firm’s greatest assets, they are also its biggest expense. This situation is unlikely to change much in the foreseeable future as the race to hire, retain and develop staff heats up.
“Salaries take up almost half of practices’ revenue, but finding the right people continues to be a challenge. Competition for talent remains stiff and two-thirds of practice owners indicate they will be looking to hire in the coming 12 months.
"Up-to-date, clearly defined job descriptions and goals, regular team communication supported through competitive remuneration will all help."
As well as adviser salaries, firms are also employing more support staff per adviser, with the number rising from 1:1 in 2020 to 1:1.5. Business Health said this suggests a shift in responsibilities and roles as advisers look to focus primarily on client-facing work and hire support staff to work on the administration and compliance.
“A higher ratio could suggest areas where greater efficiency could be achieved. On the other hand, a lower ratio could mean that advisers are doing some of the admin work and not making best use of their time.”
Other firms are looking to employ outsourced paraplanners or compliance experts to help with that work or looking offshore.
Research by recruitment firm Robert Walters in November found financial planners in Victoria earn the highest salaries at $120,000–$180,000, followed by NSW at $120,000–$160,000.
However, NSW firms said they expect this to increase to as much as $220,000 in 2024, with South Australia and the ACT also expecting pay rises this year.
Tania Milnes, general manager, membership, at FAAA, said: “We know that operating a successful practice has become increasingly challenging in recent years, as advisers balance the need to be sustainable and profitable with the regulatory red tape and the cost of providing advice.
“It doesn’t surprise me to see that advisers have risen to the challenge and have continued to provide quality advice to Australians.”
AUTHOR
Laura Dew
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Just as an aside, service companies which advice businesses are generally, have the salary bill, the highest expense and mostly above 50% and commonly 60%+.
With other inputs like PI, financial planning software, paraplanning and premises (and in some cases dealer fees) you can see why the salaries as a %, are such a large input. Some financial statements for some reason show the principals salaries below the line which is not justifiable in my mind unless they weren't doing any work. This may distort the real % and in many cases the profit view. Realistically all salaries need to be included but principal's salaries can be normalised in the case of selling the business to substitute with the cost of employing someone to do the principal's work.