Planner profitability crimped by declining client numbers

Australian financial planners are confronted by a declining number of clients seeking their services – something which is crimping their profitability, according to the latest research from Investment Trends.

The Investment Trends 2018 Planner Business Model Report, released today, has found that the average planner lost 35 active clients relationships and gained only 20 new relationships.

The research also pointed to an increase in self-licensing with one in five respondents now saying they have their own Australian Financial Services License.

“A shrinking client base has adversely impacted practice profitability growth, with fewer planners saying their practice experienced year-on-year growth in profits (53 per cent saying so, down from 59 per cent in 2017 and 61 per cent in 2016),” the Investment Trends report said.

Commenting on the findings, Investment Trends research director, Recept Peker said planners continued to face challenges on multiple fronts, chiefly with compliance, client acquisition and building process efficiencies.

“Further, the recent Royal Commission inquiry has amplified planners’ concerns with heightened regulatory uncertainty and negative press, and this is proving to be a major impediment to their growth prospects,” he said.

Importantly, Peker said that while planners believed the Royal Commission had dented the reputation of the financial planning industry, most (66 per cent) believed positive structural reforms would flow from the Financial Adviser Standards and Ethics Authority (FASEA) regime.

He said only a quarter of respondents believed the new professional standards and education framework set out by FASEA would have a negative impact.

“Most financial planners accept that higher professional standards are vital for the financial planning industry to be truly recognised as a profession,” said Peker. “The younger generation of planners are, in fact, more positive towards these FASEA led reforms.”

“Still, many planners see the implementation of FASEA standards will come at a cost, notably through the degree equivalence requirement (57 per cent cite this) and the demands of the once-off exam (31 per cent%).”

“There will be a burden on time and cost for planners as the degree equivalence requirements come into effect in 2024, and support from professional associations and licensees is needed to ensure a smooth transition,” Peker said.

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The question in my mind is whether this is a result of advisers focusing on more high value opportunities due to cost to serve challenges, and losing less aligned, more dormant (but profitable) clients. The high value opportunities may be less profitable in the short-term due to the advice delivery costs...but better in long term.

Spot on, Bob. I'd say the loss of profitability has a lot to do with advisers focusing on weeding out non-fee paying clients or those that don't suit their business model any longer, especially with a ban on commissions extremely likely. I know we have taken the foot off the new business pedal to rationalise our client base to a manageable figure, then we will ramp it up again seeking to talk to those that fit our new offering.

I would reckon its because of the unfortunate experiences many clients have had with fin planners in the past

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