Time for small advice firms to knuckle down
Several industry professionals speaking at the Financial Planning Association’s Small Principals' conference have urged small financial planning principal’s to develop a tighter grasp of their business financials.
MLC senior consultant in financial services Nicholas Hilton said small advice firms needed to have a better grasp of their financials if they want to manage another business downturn and manage future industry changes.
They need to develop a proper review of their financial performance, including measuring their cash flows, profit margins and ratios and prepare medium-term forecasts of their revenue stream, he said.
“Small principals should review and track profit margins and incorporate them into their strategic planning process,” he said.
“It’s particularly relevant given the potential for significant industry changes,” he said.
Small advice firms also need to understand the likely impact of these changes to their profit margins and cash flows, he said.
Hilton also said that many businesses still did not understand which of their clients were profitable, and they should consider selling their non-core clients.
He was still seeing practices where the A and B level clients were “subsidising” the C and D level clients, he said.
Hilton also said that a tightening labour market and higher compliance costs would reduce profit margins and advice firms needed to be far more efficient to maintain the levels of profit they are used to.
Alisdair Barr, head of Commonwealth Financial Planning, echoed Hilton’s comments, saying advice firms needed to know their numbers inside out and reward and encourage efficiency and improvements.
They had to determine what their weekly cash flows were, what revenue was coming into the business and their overheads, as well as have a grasp of variable and fixed costs, he said.
While Barr did not suggest selling unprofitable clients, planners need to investigate whether they were receiving value for the cost of what it took to service a client, he said.
Recommended for you
The corporate regulator has announced its first adviser banning of the year with the permanent ban of a Queensland-based former adviser that was sentenced to seven years’ imprisonment.
The Australian financial advice industry has risen by more than 20 advisers this week, with nearly half joining WT Financial and Sequoia.
Two financial advice professionals have shared their tips for success when building an effective Professional Year program as more advisers look to bring on junior staff to their practices.
Numbers are in for 2024, with Wealth Data confirming how many advisers left during the calendar year and which business models saw the largest growth in terms of new licensees.
