As the future of the advice profession becomes clearer, practice growth has emerged as a key priority for many advisers over the next 12 months. According to our latest Financial Advice Landscape Report, an impressive 80% of businesses are planning to expand their client base, while only 15% of practices say they are content with their current book.
In pursuit of increased efficiency and reduced costs, many firms are turning to outsourcing instead of hiring additional support staff. This trend is expected to continue and even intensify in the coming years, as lower-cost technology solutions become more prevalent in providing practice support. The Federal Government's changes following the Quality of Advice Review will further accelerate this shift as practices move towards principles-based advice records and more efficient consent and fee processes.
Given these developments, and based on our survey of Australian advice practices, the question arises: What does the optimal financial advice practice look like?
Figure 1: An optimal financial advice practice in 2024
Source: Adviser Ratings' 2024 Australian Financial Advice Landscape Report
"We’re now seeing practices with a 40% profit margin, and most of those practices are generating 1 million in revenue," says Angus Woods, underscoring our analysis, which reveals that the most successful practices in 2024 maintain these high profit margins and have increased their revenue by over 15%.
The past year has been highly productive for most advice businesses, with 78% reporting a rise in revenue as evidenced in figure 2 below. This positive trend is evident across businesses of all sizes and is attributed to improved operating conditions, the adoption of cost-effective technology solutions, and the ongoing high demand for financial advice services.
Figure 2: Revenue change over past 12 months
Examining Profit Margins and Practice Size
Figure 3 below illustrates profit margins across Australian advice practices, showing a clear scale advantage as practice size increases. The average profit margin across all practices is 21%.
For practices with a single adviser, 21% report no profit, with 15% achieving less than a 10% profit margin, and only 11% exceeding a 40% profit margin.
In practices with 2-4 advisers, only 8% report no profit, while 13% exceed the 40% profit margin threshold, indicating better profitability due to leveraging efficiencies.
Larger practices with 5 or more advisers show the most robust profit margins. Only 7% report no profit, a substantial 39% fall within the 20-30% profit margin range, and 11% exceed the 40% mark.
Figure 3: Profitability margin based on practice size
Scaling Up: Insights into Client and Asset Management
In the last 12 months, optimal practices have onboarded more than 30 clients and manage Funds Under Advice (FUA) between $200 million and $500 million. Typical advice firms are sized between one and ten advisers, with this segment representing over one-quarter of the entire profession.
This data reflects a broader shift towards the self-licensed model compared to larger Australian Financial Services Licences (AFSLs). Adviser Ratings discovered that small licensee groups of one to ten advisers have seen a 17% rise since 2018, and this growth trend is expected to continue.
Boosting Profits with Female Staff: The Key to Success
One of the most interesting findings from this year’s research is that practices with a higher ratio of female-to-male staff are experiencing greater year-on-year increases in revenue and profit compared to those with a lower ratio of female staff.
“The more females you have in your practice, the more profitable it is, according to the statistics playing out”," says Angus Woods. "If you’re a partner looking at a firm, female-run practices are making more money, and their investment decisions are likely to be more enduring."
These optimal practices typically employ an average of five advisers, one paraplanner, and four customer service representatives. They either provide insurance directly or have referral relationships with risk specialists.
Article by:
Comments0