The ‘virtuous cycle’ of people planning: Macquarie

The most profitable advice firms have an eye for deriving value from long-term people planning, new research has found.

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

The report revealed a link between high-performing firms (HPF) – defined as the top quartile of firms based on gross profit per owner – and those who have achieved the “virtuous cycle” of being able to reward their advisers with more bonus and incentive programs because they’re more profitable.

Namely, over 65 per cent of HPFs had a bonus or incentive program – 20 per cent more than their peers.

These same firms had a significant rise in profit per owner, at $445,937, as opposed to $304,686.

As such, HPFs spent more on salaries to attract and retain quality staff, with non-owner salaries representing 54 per cent of total costs versus 48 per cent for other advice businesses.

This included investments in the implementation of intentional and measurable people strategies such as position descriptions, appraisals, and performance objectives.

“A well-organised firm with stronger employee value propositions can attract talented people,” Macquarie noted.

“Staff who feel empowered and rewarded offer greater discretionary effort, which translates into better client experiences, and frequently, better business outcomes.”

Thinking about succession

The report also uncovered that succession planning delivered per owner profitability of $684,148 versus $355,446 profit per owner in firms with no documented succession plan.

However, only 4 per cent of HPFs actually had detailed documentation of succession plans; an opportunity, Macquarie observed, that is ripe for exploration, particularly in a tightly contested talent market.

Olivia Ellis, head of accounting and financial services at Macquarie Business Banking, said that high-profit businesses have frequently reviewed long-term strategic plans, particularly around the succession of their business.

“Firms that have documentation to support succession planning, can be twice as profitable as others as it creates alignment between owners and key staff around business continuity and long-term growth ambitions,” Ms Ellis added.

Macquarie pointed out that these practices enhance profitability by harmonising incentives for both employees and owners.

In particular, current principals are motivated to establish processes that foster profitable growth and set the firm up to operate without them, maximising value on transfer.

“For advice businesses looking to the future, motivating talented people to perform well for clients, the business, and for their own prosperity, is key. Bringing these talented people into business ownership may provide a stable foundation for the future,” the report detailed.

“Succession planning is never considered too early, yet is often discussed too late.”