Staffing challenges hinder growth for advice firms, research shows

The latest report from Forte Asset Solutions reveals that, among the advice businesses sold through the company, the most significant factor affecting market value is “staff levels and capacity to service and grow”.

Using previous clients as an example, Forte showed that a single-adviser practice with no support staff, a recurring revenue of $364,044, and an adjusted earnings before interest and tax (EBIT) of $71,188 sold for $1,103,790.

Comparatively, a business with two advisers, a client services manager, paraplanner and receptionist, and a recurring revenue of $1,329,566 and adjusted EBIT of $598,380, sold for $4,200,000 – almost four times the single-adviser practice.

While the report highlighted the importance of hiring additional staff in order to grow, it recognised that the high cost of salaries is a major barrier, particularly for smaller businesses.

Forte noted that labour has always been the largest expense item for advice businesses; however, “it is also the most exposed expense line to the prevailing economic and market movements”.

Highlighting the potential cost of expanding staff, the report disclosed that a senior financial planner with over five years of experience earns an average salary of $140,000 to $180,000, while an adviser with two to five years of experience typically earns between $110,000 and $140,000, according to data from Kaizen Recruitment.

Support staff also come at a high expense, with salaries ranging from $70,000 to $110,000 for a paraplanner and $70,000 to $95,000 for a client services officer, depending on their experience and responsibilities.

As advice businesses grapple with rising operational costs from increased levies and time-consuming compliance regulations, many are turning to outsourcing to secure affordable support staff.

“Outsourcing is essential in the current labour market and since the almost complete adoption of cloud-based technology during COVID, which enhanced security with the adoption [of] drop box, client portals and Australian professionals onsite management,” Forte said.

“We are increasingly seeing large and, in some cases, mid-size Australian businesses directly employing offshore talent.”

While it has become more common for businesses to outsource paraplanning services, Forte explained it can also be valuable for businesses to employ outsourced staff for administration, management reporting, secretarial and bookkeeping services, as well as asset management and back-office tasks.

“The key to outsourcing is ensuring all staff are treated with respect and have the same access to training, career development and the feeling of belonging to a group that is helping people achieve their goals,” Forte said.

Similarly, the latest findings from VBP’s 2024 Advice Operations Research Report revealed significant financial advantages for businesses that strategically outsource, highlighting a clear correlation between outsourcing practices and improved profitability.

Namely, the report found that businesses that outsourced a team member achieved the highest average EBIT at 25 per cent. In contrast, firms that did not outsource had an EBIT of 23 per cent. Notably, companies that only outsourced tasks reported an average EBIT of 22 per cent and a satisfaction score of 3.7 out of 5.

In addition to outsourcing, Forte’s report highlighted that some businesses are opting for acquisitions to grow their teams and capitalise on the benefits of scale. Furthermore, certain firms are offering key personnel shares and ownership opportunities to attract new talent and retain current staff, providing security and reducing key person risk for both the employees and the company.