As a result of the recent FOFA reforms and requirements of Fee Disclosure Statements and Best Interest Duty, advisers are reporting that the compliance requirement to provide ongoing advice to clients is far more : oncurious, at a time when pricing of advice is under pressure.According to Bstw Industry benchmark report, even prior to the new legislative requirements taking effect in July 2013, the average financial planning firm was only experience annual sales growth 7.8% 1. Average net profit was 23.2%, (which is low due to the higher cost of wages and on costs).
- The average wages as a % of Sales = 41.6%.
- In contrast, the top 20% of firms surveyed have a net profit greater than 30% and a lower wages cost as a % of sales,being able to get more productivity from their employment expenses.
When you include the Total Employment Costs (TEC) (i.e. super, workers comp., payroll tax, cost of seat, benefits etc.), we estimate that the average financial planning firm is allocating more than 60% of their revenue to employee relating costs. In recent time we have seen this figure increase as firms have to absorb the growing costs of providing advice, as it has been difficult to pass this costs on to clients.
The key metrics that an Advice Firm therefore should measure and be focused on are:
- Revenue per TEC (Total Employment Cost) and
- Profit as a % of TEC
1 Source: Bstar Industry benchmark report for the period Sept. 2010 to Sept 2013 for financial planning firms with a turnover range of $1m – 2.5m