Some lessons from the covid pandemic promised to unleash new productivity growth.

Studies don’t prove it. Yet.

The Economist reported that post-pandemic spending is reinforcing supply lines, re-building inventories and attracting talent from the tiniest unemployment pools in decades.

Working from home and adapting workplace habits provide more significant opportunities for work/life adjustments, but nothing is clear from a productivity perspective.

Well before covid, the financial advice industry was undergoing its own revolution.


The most significant investment for financial advice firms is talent.

The speedo on the dashboard of the new era of financial advice firms will be the return on talent investment – the Leverage Ratio.

The Leverage Ratio is simple.

What return in revenue is a firm’s investment in talent producing?

The calculation is annual revenue divided by annual remuneration.

For a firm with annual revenues of $750,000 and annual remuneration costs of $300,000, their Leverage Ratio is 2.5.

So what?

Apart from being a good result, it also suggests the firm is well balanced for growth, neither under or over-staffed, and hinting the next shift is probably downwards.

Like most business gauges, the trend is more important than the snapshot.

Because comparable measures need to be consistent, variations need management.

As the Leverage Ratio needs to include the remuneration of the firm’s owners, a notional salary needs to be used for calculation as the actual amounts vary greatly from firm to firm, and at different stages of a firm’s evolution.

Some owners take no set ‘salary package’, preferring to take whatever is ‘left’ after costs have been paid.

Others are the first to tighten their belts when their firm needs an extraordinary short-term reinvestment, hoping to reap what they are continually being asked to sow.

Some owners demand expensive lifestyles while others with similar experience and sized firms don’t.

So to cater for wildly differing amounts paid to owners and to produce a comparable measure for the Leverage Ratio that makes reliable statistics, a notional amount is adopted for each full-time-equivalent (FTE) owner.

I currently use $150,000 for my comparisons for each FTE owner in a firm. This figure isn’t an average amount and is purely a statistical figure to help the consistency of comparison.

These ratios are of firms delivering comprehensive advice – that is, where the vast majority of clients engage their advisory team for all their advisory needs, not just a single focus on superannuation, risk, tax, or investments.

How is the Leverage Ratio managed?


Unless backed by benevolent bankers or venture capitalists, start-ups can’t afford their founders.

By the time firms reach approximately $300,000 in revenue, founders have usually had to employ someone. Their Leverage Ratio would be lucky to crack 1.5.

As start-ups improve their systems, propositions, client bases, and team productivity, their Leverage Ratio slowly climbs above 1.5.

The Leverage Ratio is about leverage.

That is, minor improvements produce significant benefits.

Comprehensive advisory firms with revenues below $2m less concerned about adviser dependency can achieve Leverage Ratios above 2.0.

For instance, an adviser with revenues of $650,000 and team remuneration of $80,000 can achieve Leverage nearing 3.0. Despite the high Leverage Ratio, these businesses are entirely dependent (like medical specialists) upon the exertion and well-being of their founders when they are not around (e.g. holidays). The merry-go-round stops and waits until they return and start it up again.

Comprehensive advisory firms below approximately $2m, not wanting to get on the merry-go-round model, juggle an ever-moving Leverage Ratio between 1.6-2.0.

Team members will come and go, expertise will increase, and ideally, average fees per client will grow significantly quicker than costs per team member.

The effective use of off-shore team members is a game-changer for the firm’s Leverage Ratios.

It is hard to grow Leverage Ratios, particularly in today’s ridiculous compliance environment, without valued off-shore team members.

For the Leverage Ratio calculation, off-shore fees are not included as direct remuneration but as a business cost. The reasoning is that on-shore team members advise clients, and off-shore resources do not. At least, not yet.

Building effective off-shore support team members, re-segmentation of client bases, re-pricing of clients, constant skilling of teams and managing Face Time of all advisory team members improve Leverage Ratios.

These are crucial growth strategies for comprehensive advisory firms, as ‘success’ drives them beyond $2m into their next growth phase.

Balancing team and client growth become harder for many firms because they believe recruitment is their best strategy to manage growth.


For $2m+ firms, hiring more people when Leverage Ratios are less than 2.0 hints at potentially treating the wrong issue while adding to the demands of increasingly overworked principals.

Adding more junior team members to manage the growing tail of loyal and long-serving clients, while hoping existing resources ‘lift’ to support the busy principals is believing merry-go-rounds actually make progress.

It is far easier to grow a merry-go-round than it is to move it forward.

I know founders who say the ‘fun’ left about the same time they got their ‘corner office’.

Without re-segmentation of clients, constant team skilling of all members, repricing clients, management of team Face Time, and effective use of off-shoring team members, achieving better Leverage Ratios will be rugged.

Bigger isn’t better, better is better.

The hoped-for technology and productivity benefits from the pandemic may not yet have materialised.

Similarly, the productivity promised by the constant reforms in the financial advice market may appear non-existent.

However, the reforms and disruption have poised the advice industry as the computer software industry was in the 1980s.

The 80s was the decade when quality software separated from hardware.

The same is happening with financial advice today, with quality advice separating from product advice.

Leveraging an advice team to valuably meet the needs of clients is the advice industry’s most significant opportunity and challenge.

As the demand for advice grows, so does the need for advice leverage to serve what clients value and will pay for.

What do you reckon?




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For over 30 years, Jim has influenced, coached, and consulted advisory firms across Australia. His consulting firm, Certainty Advice Group coaches, trains and builds advisory firms delivering comprehensive, unconflicted advice, with fees priced purely on value. He is growing a strong and collaborative community of advisory firms aligned on Australia’s only Certification Mark advice standard for comprehensive, unconflicted advice – Certainty Advice.  He has authored four books regarding financial advice with his latest – What Price Value – available now since its release in March 2022.

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