Adviser Ratings’ upcoming report has painted a picture of the average financial advice practice in 2024, including the profit margins of top-performing firms.
The firm’s impending Advice Landscape 2023–24 report has highlighted the typical attributes of an advice business.
The average adviser – typically aged 52 years old – earns an annual salary of $140,000, while the average advice practice generates more than $500,000 in yearly revenue with a 21 per cent profit margin.
In contrast, the most optimal advice firms reported profit margins of 40 per cent or higher. To achieve such profitability, these practices need to bring in a six-figure revenue above $1 million.
While the vast majority (78 per cent) of advice practices overall have seen revenue growth in the past year, optimal practices are enjoying a 15 per cent rise in revenue.
“Practices are more and more profitable than ever before. The opportunity for greater efficiencies are enabling [advice firms] to become even more profitable,” remarked Angus Woods, Adviser Ratings founder and managing director.
Moreover, the average practice has $225 million in funds under advice (FUA), while the average adviser has $89 million in FUA.
Typical advice firms are sized between one and 10 advisers, with this segment accounting for over one-quarter of the entire profession. Practices with 11–100 advisers make up 21 per cent, followed by businesses with 100 or more advisers at 20 per cent.
This data reflects the broader shift towards the self-licensed model in comparison to larger Australian Financial Services Licences (AFSLs).
Research by Wealth Data previously found all but two of the 113 new licensees that commenced in 2023 had less than 10 advisers. Similarly, Adviser Ratings discovered small licensee groups of one to 10 advisers have seen a 17 per cent rise since 2018.
“Small licensees have been growing. This segment has been burgeoning and will continue to grow,” Woods projected.
Looking at the typical advised client, their average age is 58 years old and are charged an average annual fee of $4,300 – an 8 per cent rise from the previous year.
Building superannuation and retirement planning remains the most common reason for clients seeking advice.
Vital Business Partner (VBP)-backed Elixir Consulting recently identified six critical factors that bind top-performing advice practices together, as defined by their earnings before interest and taxes (EBIT) margins.
These were:
- Healthy culture
- Dedicated practice manager
- Documented processes
- Outsourced tasks
- Use of managed discretionary accounts
- Engaging with an external business coach
Emphasising the first point, Lana Clark, senior consultant at Elixir Consulting, previously underscored why “playing the long game” of cultivating a desirable work culture is vital for high-performing advice teams.
