There are seven key mistakes that financial advice businesses need to steer clear of in 2025, according to Adviser Ratings.
With the highest performing advice firms achieving profit margins north of 40 per cent, the research house examined common pitfalls these firms are avoiding that can hinder growth and profitability.
“As we wait for the Quality of Advice Review/Deliving Better Financial Outcomes [legislation], solving for the pitfalls of practice effectiveness and success is a great way to kick off the year,” Adviser Ratings stated.
“The gap between high-performing and struggling practices will likely continue to widen, making it crucial to address these issues sooner rather than later.”
1. Reactive growth versus strategic focus
One-quarter of advice practices are growing their client bases reactively by servicing all types of clients, compared to 55 per cent of businesses that intentionally target a specific client base, such as young professionals or retirees.
Adviser Ratings warned that a reactive approach can often cause lower profitability as well as operational inefficiencies by failing to define their services or client base.
“Practices that attempt to cater to everyone often face challenges in delivering value efficiently. In contrast, the most successful firms have a clear target market and structure their operations to serve it effectively, empowering them to steer their business in the desired direction.”
Moreover, practices lacking clear target markets may find it challenging to pursue specialised expertise as they attempt to serve a diverse client base with differing demands.
Money Management previously spoke with two advisers who were opting to specialise in certain client niches in their business.
For Chris Carlin, founder of Glasshouse Wealth, working with select clients who are young, “ambitious accumulators” has enabled him to foster longer-lasting relationships and become an expert in that field.
2. Resistance to technology
With advisers continually encouraged to embrace new technological solutions, a resistance to such tools can lead to lower profit margins and greater inefficiencies as they fail to benefit from its capabilities.
Adviser Ratings’ research indicates that practices harnessing technology enjoy profit margins between 24 per cent and 40 per cent, while those without average at 14–20 per cent.
Firms that remain hesitant to new technologies, such as artificial intelligence (AI), can also struggle with client engagement as an increasing proportion of clients now expect digital access with their adviser.
“Practices that can’t meet these expectations risk becoming increasingly irrelevant to younger clients and those prioritising digital interaction,” it added.
3. Lack of succession planning
Succession planning has historically been a weak spot for advice businesses, with 40 per cent of firms lacking a nominated successor and saying they don’t need one. Another 30 per cent say they need a successor but haven’t begun the search.
“Succession planning is never considered too early, yet is often discussed too late,” Macquarie’s Financial Advice Benchmarking report stated last year.
Without a clear succession plan in place, this can have negative consequences on client relationships, staff retention and a practice’s overall value, Adviser Ratings explained.
“Clients increasingly want to know there’s a plan for their long-term care, and staff want career progression opportunities. Without clear succession planning, both these key stakeholder groups may look elsewhere.”
4. Process management deficiencies
Looking at process management, the research organisation noted that leading practices document and systematise their operations, while underperforming firms often rely on ad-hoc approaches.
The latter can prompt greater error rates, inconsistent client experiences, higher compliance risks, and more challenges when onboarding new staff.
Contrastingly, businesses with detailed documentation said they see 24 per cent faster advice delivery and a 42 per cent decrease in compliance-related tasks.
5. Weak client communication
Infrequent communication with clients throughout the year can risk lower retention rates and see missed opportunities for deepening these relationships.
Successful advisers prioritise regular contact and meaningful interactions with their client base, Adviser Ratings highlighted.
“Modern clients expect more than just annual reviews. They want to feel connected to their financial journey and understand how market changes or life events might affect their plans.”
6. Data management failures
As cyber security protocols become paramount for the financial services industry, poor data management can expose several vulnerabilities in a business. These practices may fail to leverage client insights and see increased compliance risks.
Despite the cost of a data breach being significant for advisers, many continue to underinvest in this area, Adviser Ratings cautioned.
ASIC chair Joe Longo told AFSLs last October that cyber protection should be “top of mind” for them as they manage their businesses.
Longo flagged the example of RI Advice, when the Federal Court found it had breached its licence obligations to act efficiently and fairly when it failed to have adequate risk management systems to manage its cyber security risks.
7. Mismanagement of platforms
A final pitfall for advice businesses to avoid this year is poor platform selection and management, the firm underscored.
Amid the rise of self-licensing, there are numerous considerations that advisers must factor into their choice when selecting a platform for the first time. These include features of the specific platform itself, how it will fit in with their desired clients, and whether it will be suitable for the type of practice they envisage running.
A complicated and difficult-to-navigate investment platform, alongside weak relationships with related business development managers (BDMs), can lead to slower processing times and decreased client satisfaction.
Instead, advisers are encouraged to maintain strong interactions with platform and product providers for additional support.
Adviser Ratings concluded: “By steering clear of these mistakes and building robust systems, practices cannot only survive but thrive, enjoying higher profit margins, increased client satisfaction, and a stronger market position.”
