Balancing client fees and operating costs to avoid the ‘58% club’

While the advice profession struggles under growing operating costs, Adviser Ratings found more than half of practices – some 58 per cent – that generate less than $250,000 in revenue report no profit at all.

Although the average practice is generating more than $500,000 in annual revenue, according to Adviser Ratings’ latest industry report, the firm said this lack of profitability for others suggests there is a minimum viable size for a sustainable practice to operate, which is bigger than most advisers think.

As some smaller practices struggle, however, the firm found that just 1 per cent of practices with $1.5–$2.5 million report no profit, while almost half (48 per cent) achieve profit margins above 30 per cent.

With this, Adviser Ratings identified four business models with different levels of revenue, profit margin, fees, and client bases, all of which can be sustainable if the practice can “choose one and commit to it”.

“Trying to be everything to everyone is a recipe for that 58 per cent non-profit club,” Adviser Ratings said.
According to the firm, practices may fall under one of four models – the volume player, the hybrid operator, the holistic planner, or the premium practice.

Across these models, practices generated an average revenue between $1.47 million and $3.27 million, with those at the top end opting for specialisation and lower fees, but utilising scale and efficiency to service more clients, generating an average profit margin of 22 per cent.

On the other hand, the ‘premium practice’ utilises “exceptional expertise” to capture a sophisticated client base that is willing to pay higher fees, averaging $4,901 per client, and while they are generally smaller in size, they also achieve the highest average profit margin of 24 per cent.

Falling in the middle are those delivering comprehensive advice or operating with a mix of specialists and generalists. These firms, according to Adviser Ratings, maintain average 23 per cent profit margins and generate between $1.5 million and $1.96 million in revenue, with average fees of $3,430–$4,579 per client.

Notably, research from Investment Trends last year revealed that while the average adviser client book had decreased from 120 clients in 2023 to 99 in 2024, advisers were maintaining strong profit margins through strategic fee increases and keeping operational costs low.

According to the research house, the average ongoing fees charged per client in 2024 were $5,500 per annum, marking a 17 per cent increase on the previous year from $4,700. Looking back even further, Investment Trends found advisers were charging $3,450 on average in 2016 and servicing an average of 132 clients.

Speaking with Money Management at the time, Investment Trends head of research Irene Guiamatsia said the rising fee rates over recent years are a result of advisers now “seeing their value proposition differently and actually matching what they see as their value with a higher commercial value”.

While rising advice fees are a result of increased operational costs across the board, such as industry levies, technology costs, and time-consuming compliance requirements, as well as increased educational requirements for advisers, it is important to note that the government is working on legislation intended to curb the cost of advice and increase accessibility.

Looking at where we stand now, Adviser Ratings 2025 Australian Financial Advice Landscape reported an average annual advice fee of $4,668 per client, with the average adviser servicing 101 recurring and 30 one-off clients.