Practice profitability improving as advice landscape continues to evolve
Leading research firm Investment Trends has released its latest 2022 Adviser Business Model Report, an in-depth study of Australian financial advisers and their business support needs.
Financial advisers’ resilience has been put to the test over the past twelve months. The ever-changing regulatory landscape has seen the population of advisers drop from 20,000 in 2021 to 16,500 in 2022. The latest report revealed that the move to self-licensing has eased over the past year as advisers begin to weigh up the benefits with the additional costs and compliance challenges associated with this model. Despite this, the movement of advisers around the industry will continue, as 70% looking to leave their licensee in the next 12 months intend to move to a self-licensed model.
“Decreasing NPS is in part driving the increasing number of advisers across both the ‘Aligned’ and ‘Majority independent’ segments intention to leave their current licensee to be part of a self-licensed practice,” said Dougal Guild, Research Director at Investment Trends.
As mentioned in our recently released 2022 Adviser Technology Needs Report, compliance burden (65%), providing affordable advice (41%), and regulatory change (40%) remain key challenges for advisers. The research revealed that the complexity of these impacts and the ongoing structural changes in the sector has considerably driven up the cost of providing advice. The total cost of providing full advice to the typical client (the breakeven point) has increased from A$2,850 in 2020 to A$3,280 in 2022.
“The more successful advisers appear to have better adapted to regulatory change and new technologies to address this cost/profitability issue. They primarily service wealthier clients and are prepared to pay for tech solutions to enhance their advice offering and bolster profitability,” added Guild.
Despite the regulatory burdens and increased industry attrition, we are seeing practice profitability increasing with 46% of financial advisers stating that they were more profitable this year, compared to 34% in 2021. This is encouraging as it indicates advisers are adapting to the ‘new world’. Contributing to improved practice profit margins is a continued move by advisers focusing their efforts on acquiring and retaining higher value clients.
“Overall, practices’ net profit margins are moving in the right direction,” said Guild. “Advisers are refocusing efforts on new business post the COVID and FASEA disruption. This, combined with an increasing focus on higher value clients has delivered record high levels of new inflows.”
Key points
- One in four advisers expect to leave industry within next five years
- Advisers challenged by regulatory environment as cost of providing advice continues to rise
- Nearly half of advisers report higher practice profitability than last year
