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
Money Management examines the share price of financial advice licensees over one year to 31 March, with M&A actions in the final quarter having a positive effect for two licensees.
A $3.5 million settlement for victims of Melissa Caddick has been approved by the Federal Court following an initial agreement last December.
The Reserve Bank of Australia has delivered its first rate decision since the introduction of a new board structure last month.
Digital advice provider Otivo has launched an interactive tool, powered by artificial intelligence and Otivo’s own advice engine, to help answer client questions.
