Practical tips for transforming your advice practice

In two recent articles, we have been focussing on sustainable growth for advice businesses as we enter a period of intergenerational wealth transfer. Andrew Inwood from Core Data outlined the risks and opportunities based on research from his firm, as well as lessons we can learn from advice firms in the UK that are further along on a similar journey.

In this report we look at how some advice firms in Australia have begun implementing these strategies and what their experience has been so far. Taking part in this round table were Stephen Sloane, Founder and Director of Link Wealth, Michael Papas, Director at YX Ball Financial and Phillip Richards, Managing Director at Endorphin Wealth.

Technology removes the work

We know technology can help with business efficiency, but it’s not a one-size-fits-all solution across advice firms. “It needs to be viewed as a constantly evolving piece with regular check-ins to make sure tech strategy is aligned to your business,” says Stephen in reflecting on his experience at Link Wealth.

To get a glimpse of what a successful digitisation strategy looks like, we can look to the UK. Generally UK advice firms are showing a clear reduction in its average cost-to-serve as digitisation of many businesses is near completion. While Australian firms are generally earlier on in this process, our panel reported some early wins. For example, Phillip has found that video conferencing has been a great way to save time as they can save a recording of the session rather than having to write up the meeting afterwards. Michael agrees that this is a tool that could save the YX Ball Financial team a lot of time. “Electronic voice-to-text is an area we have been looking into,” he says. Other wins have been on the platform side, with Endorphin moving towards a consolidated tech solution. “As much as possible we have the end goal of moving everything across to X-plan to reduce complexities,” says Philip.

That said, with the Australian market in the earlier stages of digitisation, the technology available is not solving all the issues. By having a strong relationship with their provider, advice firms can help to influence the evolution of features and functionality for their benefit. BT Panorama’s ‘digital consent’ capability is one such feature that was developed following adviser insight and feedback.

Achieving sustainable growth while de-risking your business

According to revenue figures from Core Data, the average Australian advice firm is operating at around 65% of the revenue of the average UK advice firm². To bridge this gap, advice firms will need to implement new processes to become more efficient in their use of resources, allowing them to spend more time with clients which could be expected to lead to higher revenues.

One possibility that both Stephen and Phillip have looked at is outsourcing or offshoring parts of the business. For example, Stephen has set up a company in the Philippines with dedicated staff that are part of his company and treated the same as their Australian counterparts. He ensures they are given the same learning and development opportunities as well as being invited to attend meetings and off-sites.

According to Stephen, the benefit of outsourcing is access to a greater pool of talent at roughly half the cost of the Australian equivalent. In his experience each offshore employee’s production might only be about 85% of their Australian counterpart, However this strategy still provides a 70% efficiency gain overall. For the cost of an onshore employee producing at 100%, a practice can expect to hire two offshore employees and benefit from 170% capacity in comparison. Michael agrees, saying that the only additional onshore hires they would be looking to make are advisers.

With his offshore team increasing his firm’s capacity for less cost, Stephen expects a significant uplift in his advisers’ capacity. “There is no reason why Link Wealth can’t reach 180-200 clients per adviser,” he says. This would be a marked increase on the current average of 142 for Australian advice firms³.

The need for client segmentation becomes clear when you explore the cost-to-serve of different client types. Stephen used external consultants to price costs-to-serve for Link Wealth, while Phillip conducted an internal review to produce these figures. Both came to the conclusion that while many clients were profitable, there was still quite a high percentage costing the business money to service them, with those clients effectively being subsidised by their wealthier clients.

It was obvious to both practices that something had to change in order to ensure their businesses were sustainable. This resulted in fee increases for some clients. While this fee conversation might seem like one for advisers to have, both Philip and Stephen stressed that it was most important to first have this conversation in detail with your business. Bringing the wider business into these conversations and showing the issues faced if the business didn’t make changes, increased buy-in amongst staff. Phillip referred to it as an “ah-ha” moment among his staff when they realised exactly what certain elements were costing the firm.

This made the advisers’ conversations with clients much easier as they understood the wider picture and why the changes were necessary. Following this, our panel have found that, on average, only about 10% of the impacted clients leave, and their expectation is that those clients can struggle to find other firms able to offer lower fees for an equivalent service.

Partnering for success

Overall, while all advisers noted that technologies currently available are not without issues, research shows those making use of partnerships and technology are becoming more successful than those who do not. Tools such as the digital consent tool and the range of managed account solutions available on BT Panorama, for example, have provided efficiencies resulting in increased capacity for the number of clients each adviser can service.

To highlight the results of taking this approach, advice firms that have used managed accounts with 75% of their clients have seen a 127% improvement in annual profits compared to businesses that do not use this approach. In addition, automating the manual work of certain tasks, for example Records of Advice, ensures staff don’t get bogged down by work that, while important, is not helping drive growth. Finally, not only does the use of managed account benefit a business, but it also improves the client experience with online access to portfolio performance and reporting as well as regular communications, ultimately contributing to sustainable growth.

This article was originally published on 2 September 2022.

This document has been created by Westpac Financial Services Limited (ABN 20 000 241 127, AFSL 233716). It provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This information has been prepared without taking account of your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. Projections given above are predicative in character. Whilst every effort has been taken to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not consider known or unknown risks and uncertainties. The results ultimately achieved may differ materially from these projections. This document may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, Westpac Financial Services Limited does not accept any responsibility for the accuracy or completeness of or endorses any such material. Except where contrary to law, Westpac Financial Services Limited intends by this notice to exclude liability for this material. Information current as at 10 December 2021. © Westpac Financial Services Limited 2021.

1. CoreData Licensee Research May 2022
2. CoreData UK Advice Research April 2022
3. Australian Licensee Research June 2022