A large portion of financial planning firms are unaware which of their clients are the most profitable, an industry survey has found.
Research from Evolve Logic has found 70 per cent of firms are oblivious to the commercial value of their clients.
The research also found that less than a third of the businesses surveyed conducted their own research on client profitability on a revenue versus expense basis.
The lack of knowledge in this area reveals concerns that many planners are risking their profit margins by failing to identify potentially “toxic” clients, according to Evolve Logic principal strategist Stephen Bell.
“It’s usually at the two ends of the spectrum that clients can prove to be less profitable,” Bell said.
“The highest paying clients are often the most demanding, particularly in terms of client face time and administration, while small clients can also require a lot more attention than their fee justifies.”
Financial planning firms are increasingly favouring the set fee approach as it allows for greater transparency and makes revenue projection more straightforward, Bell said.
However, if the set fee approach is not coupled with rigorous methods for analysing profitability, then the way a company charges is a moot point, he said.
The survey also found more than 50 per cent of businesses admitted to having concerns over their productivity levels, with a third recognising a genuine need to become more productive as a business.
Only 13 per cent of respondents claimed to monitor productivity levels as a matter of course.
Evolve Logic surveyed around 200 financial planning firms in an online survey over a three-week period in February 2010.
