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Higher-paid staff leads to better advice firm profits: report

A new report by VBP revealed a direct correlation between pay and performance, with those offering more competitive wages seeing larger profit margins.

VBP’s inaugural 2024 Advice Operations Research Report, sponsored by Colonial First State (CFS), found that advice firms that provided all staff with bonuses and competitive salaries had an average earnings before interest and tax (EBIT) margin of 27 per cent.

Comparatively, the average Australian advice business has an EBIT margin of 23 per cent, after normalising principal salaries to $150,000 plus super.

Based on a survey of 171 advice businesses, the report further noted that firms with more competitive wages also had higher employee satisfaction and culture scores than those with less competitive pay packages.

More than 50 per cent of advisers surveyed belong to a medium-to-large licensee, 11 per cent to a boutique licensee, and 37 per cent are self-licensed.

Among the top-performing businesses, VBP identified six common characteristics including a healthy culture, a dedicated practice manager, documented processes, they outsource tasks, they use managed discretionary accounts, and they engage an external business coach.

Looking at the deeper impact of satisfactory financial compensation, the report found that firms with a more positive workplace culture, which was closely linked to better pay and employee satisfaction, saw greater profits than others.


Firms with a culture score of five out of five had an average EBIT of 24.2 per cent and an employee satisfaction score of 4.07 out of five. Conversely, those with a culture score of one to three had an average EBIT of just 19.6 per cent and a satisfaction score of just 2.8.

The report also revealed that firms that pay bonuses to all staff when they do well, of which 22 per cent of respondents indicated they did, had an average EBIT of 27 per cent.

“Our findings reveal a direct correlation between a positive culture and enhanced profitability and employee satisfaction,” the report said.

“It’s unfounded to think that cost cutting on wages will increase profits – pay well and link it to performance – reward for effort has a psychological impact on staff.”

Rather than paying wages based on industry standard, the report said businesses should “align pay with business success, businesses who share the gain win the game”.

Furthermore, the report revealed that firms that involve all of their staff in strategy planning and business improvement initiatives also experience greater profits, with those that include staff having an average EBIT of 25 per cent compared with 20 per cent for those who relied solely upon themselves.

Of the respondents, 49 per cent said they involve staff where appropriate, 21 per cent involve only those who are considered leaders, 25 per cent only involve the owner, and 5 per cent don’t conduct strategy or improvement planning.

“This team effort doesn’t just make plans better; it also builds a stronger team spirit. Everyone feels like they’re part of something bigger than them, getting everyone involved and invested in the success of the business,” the report explained.

Sue Viskovic, VBP head of consulting and founder of Elixir, said the findings reinforce the value of efficient technology for back-office operations, particularly as 68 per cent of respondents said they didn’t have effective systems for managing workflow.

Additionally, she said that one-third of respondents described their systems and processes as “out of date, not documented and not consistently followed”, further highlighting the pressing need for improvement.

“As experienced business coaches, we know that fully tested and thoroughly documented processes are a critical step, if not an absolute must, to successfully streamlining and automating business operations,” Viskovic said.

“The trend towards greater technology adoption is accelerating, which is encouraging to see, but this also increases the importance of cyber security, particularly as systems become more connected and integrated.”

CFS group executive distribution Bryce Quick highlighted the importance of back-office staff, explaining that while 60 per cent of firms surveyed said they had a steady flow of client opportunities, “only half felt they could comfortably service them” while the other half were “struggling to keep up with demand”.

“We believe that helping advice practices be more successful can only help more Australians access and enjoy the benefits of professional advice. We want to support advisers to efficiently deliver high-quality advice and increase their capacity to see clients and grow their business,” Quirk said.

According to the report’s author, Lana Clark, founder of GSD Lab and senior consultant at Elixir Consulting, the research highlights the positive impact optimising operations can have on profitability, employee satisfaction, and culture.

“It is incredibly valuable having hard data on what’s happening inside advice businesses to give those struggling to create, implement, and manage essential operational aspects a compass for achieving back-office excellence,” Clark said.

“So many discussions about business growth and profitability are focused on recruitment, scale and M&A, but another important lever is optimising operations. Advisers can enhance client service, build a strong culture and mitigate risk by driving operational improvements.”