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
Digital advice tools are on the rise, but licensees will need to ensure they still meet adviser obligations or potentially risk a class action if clients lose money from a rogue algorithm.
Shaw and Partners has merged with Sydney wealth manager Kennedy Partners Wealth, while Ord Minnett has hired a private wealth adviser from Morgan Stanley.
Australian investors are more confident than their APAC peers in reaching their financial goals and are targeting annual gains of more than 10 per cent, according to Fidelity International.
Zenith Investment Partners has lost its head of portfolio solutions Steven Tang after 17 years with the firm, the latest in a series of senior exits from the research house.
