Preliminary findings of the Professional Planner/CoreData Future of Advice Survey show that a useful first step a significant number of advice businesses could take to help them negotiate the uncertainty of the next several years is to create a robust business plan.

The research is revealing an industry largely underprepared for the changes set to sweep through it. Even as the industry plunges into a period of unparalleled turmoil, the research has found that a quarter (25.5 per cent) of financial advice firms simply have no formal plan for how they intend to deal with changes to education and professional standards and to whatever recommendations the Royal Commission runs up the flagpole later this month.

Fewer than half (46.7 per cent) of advice businesses say that “to some extent” they have a plan. So all up, more than 70 per cent of advice businesses have no or only some idea of how they intend to grow – whether they measure it by revenue, number of clients, funds under management (FUM), profit, or some other metric. [caption id="attachment_1697" align="aligncenter" width="900"] Source: CoreData[/caption]

Effective planning is most important and most difficult when times are most uncertain. But to an extent, advice practices have rarely had to produce detailed business plans before – as a licensee head described it recently, “advisers don’t run a business, they run a revenue stream”. As long as revenue keeps rolling in, everything is fine. But at the end of the day if revenue doesn’t exceed expenses and produce a profit it’s a meaningless indicator.

Even so, revenue is still how most advice firms gauge success. It’s reflected in the practice of valuing advice businesses on a multiple of revenue, and it will remain a focus while it’s still the basis of buyer-of-last-resort (BOLR) agreements.

Almost three-quarters (73 per cent) of advice businesses say revenue is the most meaningful measure of growth, followed by number of clients (9.3 per cent) and FUM (8.1 per cent). Less than 4 per cent of nominate profit or earnings before interest and tax (EBIT) is the most meaningful measure. Some nominate “client satisfaction” and “quality of advice”.