Following on from our article earlier this year that examined the results of the Centurion Industry Snapshot, we thought we’d take another look at this data and whether the size of a practice, specifically its revenues, had an impact on the planner’s views of the market, growth targets and potential exit strategies.
The survey asked our clients a number of questions about projections for revenues and growth in 2016, as well as the impact of existing and pending reforms. In our earlier blog we examined the apparent disconnect between the potential ramifications of reforms on practices and growth projections for 2016. In many cases there were healthy growth targets in place yet there were limited, or no, strategies in place to drive growth and counter the impacts of reforms on generating revenue.
This time we cut the data by revenue to see if there were discrepancies, or similarities, between practices that generated more than $1 million in revenue per annum and those who generated less than $1 million in revenue. The sub million practices were made up predominantly of self-employed advisers and 93 percent of respondents had less than five employees. The $1 million and above respondents represented a mix of salaried advisers, licensee’s in charge or general management, as well as self-employed advisers with 54 percent employing more than five people.
What we found was that while there was some consistency across findings, the size of a practice did influence its views on the impacts of reform, growth targets and growth strategies. Three differences I would highlight are:
- Fifty-five percent of smaller practices (less than $1M) felt that regulatory change will make generating revenue harder in the future. This is 10 percent higher than businesses with revenues greater than $1M.
- Larger practices were much more bullish around growth and revenue targets for 2016 with one in every two respondents predicting revenue growth of 10-25 percent and one in five predicting revenue growth of more than 25 percent year-on-year. This is opposed to 30 percent of the smaller firms predicting flat or declining revenues (compared to nine percent of larger firms). Two thirds of smaller firms did predict growth however it was predominantly less than 25 percent year-on-year.
- When evaluating strategies to fuel growth, more of the smaller practices are looking to diversify and expand offerings through both partnering and in-house investment – 36 percent as compared to 23 percent of larger firms. A staggering 67 percent of practices with revenues more than $1M said they intended to keep the same offerings and same number of advisers.
I find this final data point particularly interesting as I have written several times before about a diversification strategy being key to growth. I ponder if the agility and flexibility of smaller practices will see them leapfrog larger competitors who may be sitting on stronger foundations however are slower to adapt to an increasingly regulated industry and evolving client needs.
Very few practices I speak to have anything like 25 percent revenue growth year-on-year, unless it is off a very low base as a start-up. In fact, many practices struggle to achieve 10 percent revenue growth year-on-year.
Why do you think that is?
Chris Wrightson. Founder and CEO at Centurion Market Makers, the industry experts in the sale, acquisition and management of financial planning firms. If you’re planning on selling your firm in 2017, we’d love you to call us for a confidential discussion, or continue browsing our website for more tips, tools and info on the steps to take when buying or selling your financial planning firm.
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