From rising costs and compliance to COVID-19, practices have faced numerous threats to their business growth in the past year. And as we saw in 2020, there’s a growing gulf between businesses languishing under the weight of change and those that are adapting with top-line growth and profitability.
Adviser Ratings research shows two-thirds of advice businesses reported growth in revenue last year, which reflects both market normalisation and the expanding demand for advice.
Figure 1 – Practice revenue 2021
Source: Adviser Ratings' 2022 Australian Financial Advice Landscape Report
A third of diversified practices reported revenue above $1 million for the year, while 5 per cent reported revenue below $250,000.
In the privately-licensed space, the revenue split was a little different. A third of privately-owned licensees with between 11 and 100 advisers reported less than $250,000 in revenue, as did 23 per cent of large licensees (with 100+ advisers). Less than one in five privately-licensed practices with more than 11 advisers reported revenue above $1 million.
Figure 2 – Distribution of practice revenue by licensee type
Source: Adviser Ratings' 2022 Australian Financial Advice Landscape Report
When it came to profitability, scale was a clear advantage. Practices with five or more advisers had a higher proportion of firms with profit of 30% per cent or more, compared with practices with fewer than five advisers. Businesses are realising this and increasingly looking towards mergers and acquisitions to achieve that scale.
Solo operators reported the lowest profitability, with 23 per cent reporting no profit at all and only 24 per cent achieving 30 per cent or more, compared with 38 per cent of practices with more than five advisers.
Figure 3 – Practice profitability by number of advisers
Source: Adviser Ratings' 2022 Australian Financial Advice Landscape Report
What sets practices apart
Adviser Ratings analysis shows the businesses with stronger profitability and top-line growth are those that can deliver an optimal client experience, without being hamstrung by inefficient processes.
Businesses are increasingly recognising this as well. When we asked practices what their top priorities were for the next year, half of the businesses we surveyed reported that they wanted to address material process inefficiencies. Other priorities included new business, IT solutions and adviser recruitment.
Figure 4 – Changes practices are looking to make
Source: Adviser Ratings' 2022 Australian Financial Advice Landscape Report
As the adviser market contracts, practices are also becoming far more discerning about the types of clients they onboard. Almost half of the practices we surveyed said they were purposely growing their client base, but seeking certain types of clients. Given the burgeoning demand for advice, practices can be more selective, which is a trend we certainly expect to continue.
We’re seeing practices progressively define their ideal clients and be more disciplined about how they target, attain and retain them. Again, this is an area that separates stronger and weaker practices, our analysis shows.
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