Most advice firms to survive market downturn: Business Health
Most financial advice firms in Australia are sufficiently profitable to ride out the current market downturn, according to Terry Bell, director of financial planning researcher Business Health.
“The average advice firm is very profitable, at an average profitably of 25 per cent, with significant profit in their ongoing revenue,” Bell said.
“We don’t expect to see a lot of failures among advice firms.
“Certainly, profitability has reduced since the end of 2008 due to continuing decline of the market and in FUM levels, but they have come off five years of very strong FUM growth.
“In addition, because a number of these businesses have moved to introducing fees in one form or another, and once they have a fee-based structure, a falling level of FUM isn’t as critical an issue for them.
“While fee-based remuneration isn’t certainly a common way of remuneration, the better practices are leading the way to converting to that basis, so they have been insulated from FUM as an issue anyway.”
Many firms nevertheless are strategically deferring capital expenditure in this cycle on such things as software/network upgrades, premise relocation/upgrade, or even acquisition of businesses, he said.
A number of firms are also looking for ways to reducing expenses, including putting on hold staff salary increases or asking staff to work four days a week or even to take a pay cut.
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