As financial advice firms face up to the challenges of the next five or six years, attention is increasingly turning to which of them are adequately resourced to adapt effectively to the changes ahead.

CoreData’s research into the financial capability of financial planning practices has revealed that some may struggle to meet the cost and time commitment needed to accommodate new education, professional and ethical standards, and to deliver advice to clients in a way that satisfies an increasingly inquisitive regulator.

But it’s also just as clear that there are businesses well-placed to thrive, and during September around 40 of those businesses convened at the 2019 Peer Summit in Sydney. A benchmarking survey of the practices, conducted for the summit by CoreData, painted a picture of a cohort of advice firms grappling with exactly the same issues as every other advice firm, but among the best placed to cope.

What makes the benchmarking insights particularly interesting is that 85 per cent of respondents hold their own Australian financial services licence. As such, they represent a yardstick for any adviser or advice business thinking of likewise going down the own-AFSL route. As covered elsewhere in New Model Adviser, financial advice businesses that are not properly set up and resourced may struggle to transition to own-AFSL status without running foul of the regulator.

The firms in the survey serve an average of 988 active clients each, and with an average of nine authorised representatives in each firm, each individual adviser manages 128 active client relationships. The average firm in the group employs 24 staff, not including ARs.

The average funds under management figure of $562.5 million per firm, presented to the summit, excluded one outlier in the survey. On verifying the figure provided by that firm, and adding it back into the overall figures, the average FUM per firm increased to $760 million. And only a tiny fraction of the firms’ income came from conflicted grandfathered sources – well below the industry-wide average of 12.5 per cent revealed in other CoreData research.

The firms attending the summit charge healthy fees for the services they provide.

The firms at the summit only generate around a quarter of their fee income from flat fees (linked to the Consumer Price Index); around 42 per cent of fee income comes from charging a percentage of FUM. Flat fees, negotiated annually, account for around 10 per cent of fee income.

Only one respondent to the survey reported generating 100 per cent of revenue from flat fees, and one firm reported generated 93 per cent of revenue from fees linked to FUM, suggesting there remains a wide spread of approaches and philosophies across even the own-AFSL advice community.

The firms at the Peer Summit are also growing, collectively, at a fairly healthy clip, with a reported revenue increase of 15 per cent from 2016-17 to 2017-18, and 18 per cent from 2017-18 to 2018-19. Expenses as a percentage of revenue averaged about 75 per cent across the group, suggesting a group-wide average earnings before interest and tax of 25 per cent.

Client numbers, funds under advice, revenue and earnings before interest and tax (EBIT) are all forecast to grow, on average across the group, in the one, three and five years ahead.

Clearly, this is a group of advice businesses in, generally speaking, rude health, and gives a perspective on the own-AFSL cohort of the advice industry that suggests its future is bright, if the firms holding their own licenses are well managed and dedicated to focusing clients.

The overwhelming majority report having a clearly and formally documented business plan, and they make more common usage than the broader industry average (revealed in other research by CoreData) of running regular and formal client satisfaction and feedback surveys, which mostly they use to improve the quality of advice and service.

One of the most telling findings of the survey was that every firm bar one reported having a clearly and formally documented business plan. Earlier research by CoreData has revealed the incidence of clear and comprehensive business planning across the industry is around a third this level.

If the old saying that if you fail to plan you’re planning to fail indeed holds true, then the practices participating in the Peer Summit benchmarking survey appear to be in a better position than most.

But the good news is that if these businesses can plan ahead, ensure they’re adequately resourced to deal with the changes that are coming, continue to service clients effectively and look to the future with confidence, then so can others.