fFinancial PlanningFinancial planners in Australia are about to embark on a new journey with regards to how they earn their income.

The Federal Government’s ‘Future of Financial Advice’ reform will take effect from 1 July 2012, and will impact on financial planners who earn commissions, volume based payments, and fees calculated as a percentage of assets under management on geared investments.

For financial planners who are also members of the Institute of Chartered Accountants in Australia, CPA Australia or the National Institute of Accountants, the Accounting Professional & Ethical Standards Board (APESB) released a draft on 30 June, 2010 of Professional Standard: APES 230 Financial Advisory Services, which excludes from the fee-for-service definition: “commissions, percentage based asset fees, production bonuses, and other forms of fees or remuneration that are calculated by reference to product sales or the accumulation of funds under management”. It is proposed that the members of these professional bodies must apply this standard from 1 July, 2011.

The Financial Planning Association (FPA) has also recommended that from 2012, fee based remuneration becomes the standard model for financial planning advice.

As such, fee-for-service is now a reality that cannot be ignored and most financial planners will need to seriously review their revenue structure prior to 1 July, 2012 and for some, before 30 June, 2011.

There is already plenty of information out there about what financial planners must do in order to be ready for fee-for-service.

But what information is relevant to you, and what impact will changing to a fee-for-service revenue model have on your business?

The most common advice is to apply the same fee-for-service model used by accounting firms to financial planning businesses.

As a Chartered Accountant with over 23 year experience advising clients on a fee-for-service basis, I know first-hand how this model works.

And while I believe it’s the right overall approach for financial planners, there are many factors that contribute to an effective revenue strategy that even most accountants fail to consider. A sustainable revenue model needs to focus on more than simply charging an hourly rate.

Financial planners have a great opportunity to make sure they get their fee-for-service revenue model right the first time, and DON’T make the same mistakes many accounting businesses do.

Hours vs Value Based Revenue Model

Accountants often use an hours-based revenue model, meaning they work out how much to charge a client after they complete the work, and then invoice accordingly. Clients therefore have no idea what they are going to pay prior to the work being completed and value cannot be communicated.

This model also drives unproductive behaviour in staff. Instead of getting the work done as efficiently and as quickly as possible, the work is completed according to target hours. Why would you get work done faster when you need to achieve a charged hours target?

You should consider hours only when managing capacity and costs. Of course you need to know on average how long it will take to complete any given task, and what your costs are during that hour, but your pricing structure must align to the value you provide the client.

How much is your client willing, expecting and wanting to pay for the value you provide?

Accountants get stuck into doing the work but very rarely have conversations with clients about the value they bring to the table.

Most accountants are fearful of their client relationship around price and because of this, they don’t value their own skills, experience and intellectual property. Because they don’t value what they do, this translates into the price they charge. They can hide behind this time-based costing methodology and inefficient industry-wide accepted revenue model.

You need to be really clear on your value proposition so you can articulate the value of the relationship and the benefits you can provide to your clients.

Squeezing the Orange

‘Squeezing the orange’ is the revenue model most fee-for-service businesses, including accountants, try to implement. They try to improve profitability purely on efficiency gains and ad hoc sales and marketing activity.

The problem with this is you can only ‘squeeze the orange’ until it runs out of juice. You can only minimise costs and increase margin to a point, and ad hoc marketing activities will get you nowhere.

People tend to focus on the results and sales figures, not on the five key activities that drive revenue.

The most effective strategy for any business to follow is a five dimensional revenue strategy:

5 Drivers of Revenue

Product = What you sell

Marketing = How you generate leads

Sales = How you convert leads to sales ($revenue)

Production and Delivery = How you build the product

Client Relationship Management = How you manage your client’s experience so that they buy and buy again

Each activity requires different skills and hinges on each other for revenue to grow.

When you develop your revenue model under the fee-for-service requirements, make sure you focus on the five key areas, not just the ‘squeezing the orange’ strategy. Take charge of your revenue process. Set the rules of engagement with your clients that align to your business and communicate the value to the client.

You also need to consider the Revenue Growth Formula:

Current revenue = current clients^ x transaction frequency ^ x average sale^ x margin^

Growing revenue is simply a matter of maths. ‘^’ means ‘make it exponential’. Every strategy you implement must work to leverage the activity so that it produces consistent growth.

Any strategies you develop to grow revenue must fall within one of the formula components. If you analyse this further, each of the components relate back to the five revenue strategy activities as follows:

Revenue Strategy Activities

In the below example, you can see that small increments in each component have an exponential impact on the result.

Revenue Strategy

The focus is to develop strategies in each of the growth formula components and then drive the activities to produce the revenue results.

Some key strategies in each of the activities include:




Production and delivery

Client relationship management

In summary, your revenue strategy must:

  1. Focus on strategies to increase and improve each component of the Revenue Growth Formula: new
    clients^, transaction frequency^, average sale^, and margin^. Remember, small improvements in each
    component produces significant improvement in results.
  2. Implement these strategies by allocating resources to achieve results in each of the components of the
    revenue activities: product, marketing, sales, operations and delivery, client relationship management.
  3. Ensure your strategies are always structured to enable exponential improvement and leverage.
  4. Articulate value to your clients.

Call elliotts today on 07 3833 3999 to find out how you can take advantage of the move to
fee-for-service with an effective revenue strategy.