The average financial planning practice has a lot of room for improvement in major areas such as client communication and succession planning, according to data from financial planning practice consultancy Business Health.
Among the key takeouts: seven out of 10 businesses have not surveyed their ‘A’ clients at any time in the past two years, and almost half contact their ‘A’ clients less than 10 times per year.
Contact can include not just face-to-face meetings and personal phone calls but emails and client newsletters.
Business Health director Terry Bell said the fact so few practices sought feedback from clients was one of the most surprising aspects of the data.
"You’ve got a minimal communication program matched with the fact that most practices don’t know what their clients are thinking about them – it’s a double whammy."
Bell also said it was surprising that 68 per cent of practices did not have a clearly articulated client value proposition.
"Every business owner should be able to say ‘this is what I’m doing for the client’. That’s the DNA of a business," he said.
"There is a concern around how advisers are communicating the value of their advice."
More than half of practices still don’t have a succession plan in place – a statistic Bell said had changed very little in the past few years.
"You should be prepared to sell even if you’re not looking at selling soon," he said.
Bell added that succession was a big issue because many financial advisers were approaching retirement.
He said that when one looked at the mergers and aggregation in the sector, there were younger advisers who would come through who might be more qualified and more accepting of a new regime.
The data also showed 35 per cent of practices do not segment their client base – a factor that may change once Future of Financial Advice reforms came into place and practices are less able to subsidise C and D clients through A clients.
Currently the average practice has 1,000 clients and only two advisers, highlighting the need for segmentation, Bell said.
Although nine out of 10 clients said they would be prepared to refer their adviser, only five out of 10 did so, suggesting more advisers needed to ask their clients for referrals.
Other findings included: 63 per cent of practices are still generating more than half of their income via commission; 43 per cent do not have a business plan; and 42 per cent do not seek any external input on running the business, for example from a business coach or business development manager. One third do not have a website.
Bell said that overall the strong practices have been getting stronger because they are more prepared, have strong leadership, have kept their clients throughout the global financial crisis and have improved their service offering.
The reverse was also true for the weaker practices, he added.
The data was based on Business Health ‘health checks’ and ‘cat scans’.
The health checks involved practice principals completing a 100-question multiple-choice questionnaire. Approximately 200 practices over 2.5 years were included in the data.
The cat scans involved a survey of a practice’s clients.
Business Health has collected data from around 45,000 clients over its 12 years, with the latest results based on roughly the last two years of data.
Practices surveyed include both institutionally-backed and non-aligned practices.
