Bad management costing advisers thousands

Poor business practices are causing financial planners to bleed tens of thousands of dollars in potential profits every year.

New figures released exclusively to Money Management show some advisers could almost double their profits, but lack basic business management skills.

The figures were compiled by consulting group Business Health last week based on an analysis of the performance of 500 different financial planning practices over the past two years.

They showed the average practice could boost its profitability per principal by almost $60,000 a year, simply by following a formal business plan.

According to the Business Health figures, practices with a business plan made a profit of $141,928 a year per principal, once each principal is assumed to have taken $100,000 a year as a salary from the business.

But those without a plan made only $82,879 — a startling $59,049 less per principal.

Business Health principal Rod Bertino said the figures proved that a dollar value could be placed on good practice management.

“There are a whole lot of different elements that go to getting a result for financial planners, but we know that if you do them you will get a result,” he said.

Other aspects of practice management could produce an even more dramatic rise in profits, according to the figures.

Planning practices that made the effort to contact their best, highest net-worth clients more than 10 times a year, made a profit of $128,271 a year per principal, almost double the $66,030 made by those who contacted the same class of clients less than five times a year.

Advisers who simply segment their clients according to their level of wealth also profited, generating $129,743 a year, compared to $79,001 for those who didn’t.

“All clients need to be treated fairly and with respect, but they are not all equal,” Bertino said.

Business Health managing director Terry Bell said the findings could change the way dealer groups and fund managers approached the remuneration of advisers.

Those groups wanting to attract planners could concentrate on offering practice management inducements, rather than just better commissions, Bell said.

“It is up to dealer groups, or those who distribute products to advisers, to say that they will help,” Bell said.

“Don’t just increase trailing commissions. Advisers need help on these practice issues.”