Diversified revenues to drive growth in boutique financial planning firms

MAS 18 August 2010

20 May 2010 - Boutique financial planning firms are seeking to diversify their sources of revenue and focus on organic growth opportunities following the global financial crisis, to combat significantly falling revenues.

According to Macquarie Practice Consulting's 2010 Boutique Practice Benchmarking study, with average funds under advice down 26 per cent during the past two years to $136 million, boutique practices are focusing on broadening their services to achieve organic growth and, specifically, writing more risk cover.

Identifying insurance as a solid opportunity, the proportion of revenue received from insurance increased last year for 39 per cent of practices. In addition, 43 per cent revealed they generated more than 10 per cent of their revenue from risk during the past year, indicating this is likely to be an area of future growth.

However, while an overwhelming majority write insurance in house (89 per cent), more than a third (36 per cent) would like support and training in this area, demonstrating a role for the life industry to provide education to advisers stepping into a new area for the first time.

Head of Macquarie Practice Consulting, Liz McCarthy, said the latest study highlighted a number of key challenges boutique firms are facing and what they need to do to overcome them.

"Boutique financial planning practices have faced a number of challenges during the past 18 months, revenues have dropped significantly and attracting new clients has been a particular struggle during that period," Ms McCarthy said.

"This means that they had to take action to address this if they were going to continue to survive and, importantly, to grow. As a result, many of these firms have been looking at ways to diversify their income and increase their focus on other services. For many investors, the recent market downturn prompted them to think more seriously about their wealth protection needs and as a result, the need for insurance has grown.

"At Macquarie Practice Consulting we have spent a significant amount of time in the market and within practices, hearing from principals about the challenges they face. It is part of our role to identify what we call the 'profitability levers' within a business, which simply means what areas they can change to drive revenue. Diversified services is certainly one of those levers we are working with boutique practices to pull to increase their profitability."

The annual Macquarie Practice Consulting Boutique Practice Benchmarking survey has researched more than 300 financial planning practices Australia-wide during the past three years, investigating attitudes and behaviours of financial advisers and identifying key areas of change during this period.

For further information, please contact Macquarie Practice Consulting