What does an optimal advice practice look like in 2024?

Adviser Ratings’ 2024 Advice Landscape Report has revealed some of the shifting trends among advice practices and how the modern advice practice is meeting its peak potential.

According to the report findings, an optimal advice practice in 2024 is generating greater than $1 million in annual revenue and a profit margin of greater than 40 per cent.

These practices have brought in at least 30 new customers in the last 12 months and have between $200 million and $500 million in funds under management (FUM).

While the majority (78 per cent) of practices have increased their revenue by more than 5 per cent in the last 12 months, an optimal practice, according to Adviser Ratings, will have done so by 15 per cent

From a staff perspective, an optimal practice has 10 employees made up of five advisers, one paraplanner, and four customer service staff, and has a greater number of female to male staff, the report said.

Notably, the report found that practices with a greater number of female staff are increasing their revenue and profit year-on-year more than those with less.

These practices also either provide insurance directly or have a referral relationship with a risk specialist and have embraced new technologies, such as AI.

“A minority of practices have managed to achieve this status but ones who have are well set up for the future,” the report said.

Alternatively, the report found that the average advice practice in 2024 has between one and 10 advisers, generates more than $500,000 in annual revenue, has a profit margin of 21 per cent, and has $225 million in FUA. While some aspects meet the optimal standards, others fall short.

Achieving optimisation

In an effort to generate greater revenue and increase profitability, advice firms are looking to increase the number of clients they can service, with the report finding that 80 per cent of firms are planning to expand their client base, while only 15 per cent indicated they were satisfied with their existing client load.

To achieve this, many firms are also looking to outsourcing as a solution to increase their efficiency and reduce operational costs, rather than hiring additional support staff.

Adviser Ratings believes this trend is likely to continue and even intensify in the coming years due to the increase in lower-cost technology solutions 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,” Adviser Ratings said.