Financial advice businesses have done a good job of cutting down on travel expenses and other discretionary costs but could do better when it comes to overheads, an annual report by Macquarie Practice Consulting showed.
The 2011 Financial Planning Practices Benchmarking Survey showed that overheads made up 53 per cent of revenue for dealer group Australian Financial Services Licence (AFSL) practices and 49 per cent for businesses with their own AFSL.
“They’ve got a good gross profit margin but when you look at overhead costs, they’re around about half of the revenue,” Macquarie Practice Consulting senior consultant Fiona Mackenzie told InvestorDaily.
Mackenzie said the main part of overheads for the 109 businesses that contributed to the report was non-planners’ salaries, followed by other “sticky” costs such as rent and other premises-related expenses, IT and phone bills.
“They’ve been trying to manage a lot of their discretionary costs, like travel, research – do I need three forms of research, phone bills, all the sensible things they can do to manage their costs, which is great,” she said.
“The question for us now is ‘how are they going to maintain their profitability going forward?’ We really need to see revenues growing and then, just looking at the business, to find ways to make it a bit more efficient to retain that profitability going forward.”
The report, in its fourth year, showed revenues have yet to return to levels seen before the global financial crisis but they edged higher to $1.08 million in 2010 from $990,000 in 2009.
Mackenzie said gross profit, or revenue minus the cost of planners, had remained strong and was about 68 per cent of revenue.
“They’ve managed their direct costs quite evenly so it’s been quite healthy from perspective.”
