Insignia acknowledges discarding low fee clients
Insignia Financial has confirmed in its annual results that it has actually been discarding low fee paying clients and that this, in turn, has impacted its revenue.
In a full-year results announcement to the Australian Securities Exchange (ASX), Insignia not only made clear the degree to which it had sought to reduce its cost exposure to advice through the creation of Rhombus Advisory but how it had sought to focus its remaining advisers on higher value clients.
It pointed to strong new client growth across its retained Bridges and Shadforths advice businesses, but also noted that net revenue growth was “partially offset by divestments and non-renewal of low fee-paying clients”.
The full-year announcement referenced the successful restructure of advice from loss-making to being EBITDA positive “enhanced by the separation of Rhombus Advisory”.
It said this had created an innovative partnership for self-employed advisers and enhanced Insignia’s focus on its wholly-owned Bridges and Shadforth.
In its investor materials, Insignia said that its holding in Rhombus Advisory would be equity accounted at around 37% but that in FY25 its was “expected to be immaterial”.
It said net revenue from advice was $205.7 million, with $30.8 million divested and continuing business amounting to $174.9 million.
Insignia chief executive, Scott Hartley made clear that his focus was on getting the company’s balance sheet onto a firmer footing as he announced a pause in dividend payments on the back of a statutory net loss after tax of $185.3 million.
However, in doing so, he pointed to a “strong underlying profit net profit after tax of $216.2 million, underpinned by a net reduction in costs of $24 million.
At the same time, Hartley announced an acceleration of the firm’s cost optimisation program targeting a $60 million to $65 million net reduction in operating expenses in FY25, a year ahead of schedule.
Low fee clients aren’t necessarily a problem for small independent advice business, if the service level and overheads are proportional to the fees.
But they are a problem for a vertically integrated businesses, where the primary objective of advice is to generate switches into inhouse products. Low fee clients are usually better off staying in simpler, cheaper products. Pushing them into the licensee’s product is too regulatory risky. That’s why vertically integrated licensees don’t want them.
I’m curious.
Given the compliance requirements which are applicable to ALL clients (irrespective of their “value”) what do you believe to be the “break even point” in relation to fees earned versus cost to advise ?
Anyone.
I’d start by looking at your target profit margin, what your profit is now and what you need to charge all clients current and new to get to your ideal profit. For example one of the large groups (2023 numbers I think) has an average fee of $5,100 across 88,000 annual agreements. Is your ongoing fee higher or lower than that?
That average fee looks fine.
I only asked because I have seen examples (not in the main) of advisers charging way less than that and I wondered how they did all the servicing on those clients and remain (100%) compliant.
It wouldn’t be possible in my view.
Thanks
It’s quite easy to charge way less than this and remain profitable and compliant. If clients have simple requirements then they don’t need as much service, so there’s no need to charge as much in fees. Not every client needs SMSFs or quarterly reviews or tactical asset allocation for example. (And arguably none of those things actually add value for most clients anyway).
If you’re self licensed you only need to be compliant with the law, not with the licensee’s extra layers of compliance which exist to protect them, not you. And if your licensee doesn’t have inhouse products you don’t need to spend extra resources contriving reasons to recommend those products, then justifying and documenting to your client and the regulators why you did so.
some good logic here
I struggle to understand this concept at all as these clients have choice and they don’t deserve to be discarded like objects. They are people. As a self employed planner who charges “fee for service”, clients are treated the same as they pay a fee for the service they need (not % based as I am assuming that this is what Insignia are referring to here). Happy for these clients to contact me at any time.
Sharon I know we struggled with ending many long term relationships based on cost to serve and compliance risk. But on turning off the fee we made it clear they could engage us on an hourly rate.