Financial advisers are shifting towards quality over quantity in client relationships, according to Investment Trends.
The research organisation’s 2024 Adviser Business Model Report canvassed more than 1,730 advisers to spotlight the strategic changes occuring in the advice landscape.
Investment Trends discovered that advisers are experiencing notable client attrition as a result of fee increases. The median annual adviser fee has risen by nearly 60 per cent over the past five years, up from $2,510 in 2018 to $3,960 in 2023, Adviser Ratings’ research previously found.
This rise in advice fees has meant the average adviser client book has decreased from 120 clients in 2023 to 99 in 2024. This is because of the dual factors of advisers finding it is not cost-effective to service low-balance clients and consumers indicating a reluctance to pay high fees.
Consumers say they are willing to pay $911 on average for receiving advice, presenting a clear divergence from the median fee of $3,960 being charged by their advice firm.
Meanwhile, some industry professionals argue that advisers are significantly short-selling themselves and should be charging more for the level of work involved in the advice process.
But, far from this client attrition being a negative, advisers say they are pivoting their business models to focus on providing quality service for fewer clients, with deeper engagement, a more personalised experience and enhanced efficiency.
As a result, advisers say they are enjoying healthier and more engaged clients, and they have seen a rise in the average level of new client inflows from $6 million in 2023 to $6.6 million in 2024.
“The changes advisers have made in their practice operations are a clear signal of a deliberate shift towards quality over quantity in client relationships,” remarked Irene Guiamatsia, head of research at Investment Trends.
Recent findings from Deloitte and Iress painted a different picture, with their Advice in 2030: The Big Shift report revealing that surveyed advisers expect their customer base to increase by 27 per cent on average over the next five years, translating to approximately 486,000 new customers.
Moreover, Investment Trends noted a small group of “best-in-class” advisers who reported profit margins of above 40 per cent for FY23, thanks to stringent cost discipline and strategic fee increases. This aligns with an Adviser Ratings report that revealed the most optimal advice firms are enjoying profit margins of 40 per cent or higher, with six-figure revenue above $1 million.
Average funds under advice have seen growth from $63 million in 2023 to $69 million this year, the research firm added.
“Fee increases have provided a strong foundation for the rise in practice profitability which we’ve seen across the sector for the second year running, but we find that practices that vastly lifted their bottom line were those with a near-ascetic approach to cost management,” Guiamatsia said.
