High-performing advice firms prioritise client engagement, research shows

Macquarie Business Banking’s 2023 Financial Advice Benchmarking Report, in partnership with Business Health, has conducted an analysis of 312 financial advice firms across Australia to provide insight on what is setting high-performing businesses apart from the rest.

Notably, client engagement was one of the main indicators of performance, with advisers from high-performing firms (HPF) – defined as the top quartile of firms based on gross profit per owner – seeing more than twice as many clients per week (10.9) as their peers (5.2).

This was in addition to these same firms boasting 280 clients per adviser, almost 100 more than other firms (184).

However, funds under management for each client was relatively similar – $555,273 per client for HPFs and $498,443 for other businesses.

According to Macquarie, this indicates that HPFs are more profitable not because they service larger or more affluent clients, but because their structures allow their advisers to focus on providing financial advice to more clients.

Olivia Ellis, head of accounting and financial services at Macquarie Business Banking, said that advisers are further empowered to focus on deep client engagement by providing a higher ratio of support staff to each adviser.

Namely, HPFs have, on average, 1.8 support staff per adviser, compared with 1.5 for other firms. These same support staff are also taking on around 218 clients each, as opposed to 163.

“The study has shown that adequate resourcing enables frontline staff to focus on client service and outcomes, which strengthens a business’ value proposition,” Ms Ellis said.

“High-performing financial advice firms are more profitable because of the depth of their client base, on average servicing 30 per cent more clients than other firms. We are subsequently seeing greater service efficiency from a lower spend,” she added.

Structured processes drive higher profitability

Macquarie further observed that economies of scale enable firms to achieve lower cost-to-serve per client and higher profit margins.

“For high-performing firms, documenting and implementing processes to support their advisers allows these revenue-generating staff to focus more time and energy on client engagement and higher value interactions,” the study noted.

Namely, HPFs are characterised by investing time to review their cost-to-serve and educating clients on their fee structure going hand-in-hand with their client value proposition.

These behaviours, Macquarie said, pave the way to higher profitability per owner.

For those firms with fully documented annual plans, profit per partner was $664,446, in sharp contrast to those without any documented operational plan, at $294,154.

Similarly, advice businesses that frequently review strategic (three- to five-year) plans inclusive of mapping out client review processes, their profit per partner was significantly higher ($534,662) than firms who follow a less formal review process ($333,140).

At the time of the study, 42 per cent of HPFs were undertaking this process compared with 20 per cent of their peers.

“For those firms who invest time and resources into documentation that drives action and accountability, the benefits are significant,” Macquarie added.