A new survey of financial advice clients has seen a rise in satisfaction levels, but advice businesses are not converting the more positive sentiment into increased profits.
The Zurich-Beddoes Institute's Designing the Future report – which was compiled off the back of data provided by more than 3,000 clients and 300 advisers and released yesterday – found that client satisfaction has risen from 8.4 out of 10 in 2012 to 8.9 out of 10 in 2014, representing a 6 per cent growth rate across three years.
The report also identified strong year-on-year growth in “clients’ strength of relationship” with their advice practice, up 7 per cent overall over the same period.
Commenting on the findings, Zurich Life and Investments' head of communications and marketing, Richard Dunkerley, said a growing focus on client-centricity may be a trigger factor.
“Advisers are becoming smarter, more efficient and more customer-centric, and to the extent that the accessibility of advice relies on a vibrant, growing advice sector, the research findings are also a positive outcome for consumers,” Mr Dunkerley said.
However, the report also found that “practice profitability dropped sharply in 2013 and remained low in 2014”, down 1 per cent to 24 per cent of revenue.
The sliding profits come as fee-for-service advice provision is on the rise – rising from 30 per cent of revenue in 2012 to 55 per cent in 2014 – and advisers take on a greater number of “active clients”, both of which are outcomes of the FOFA reforms.
Beddoes Institute director and report co-author Adam Tucker said the diminishing profits are likely to be symptomatic of the additional costs incurred due to regulatory compliance needs rather than an indication of the long-term profit outlook for fee-for-service advice.
“We are still in a transition period, albeit towards the tail end,” Dr Tucker said, adding that those advisers who focus on implementing client-centric models and raising their Net Promoter Score are likely to see enhanced profitability.
The report also found that, having reached a three-year high in 2013, the marketing spends of advice businesses dropped off in 2014, down from 2.8 per cent of revenue to 1.2 per cent.
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