The investment market downturn for the past year has seen the value of financial planning firms reduce by up to 30%. Last year Radar Results provided 180 valuations for the financial planning industry and the impact of reduced recurring revenues and lower profitability on some firms has been dramatic. Practices with either a high level of risk product renewals or fixed dollar review contracts have weathered the downturn a lot better than pure FUM practices. Those with review fees aligned to FUM are down between 16% and 31%, even after allowing for the introduction of new business. Practices affected the most are those with “geared” clients or who have invested in products and companies that have gone “belly up”. Besides the FUM reducing, the multiples for practices has also fallen. Multiples of recurring revenue are down between 0.25-0.50x and EBIT multiples have fallen a full 1.00x.
The impact has seen some financial planners, para- planners and client admin personnel recently made redundant. New investment business seems to have reduced to a trickle and sellers approaching Radar Results for a valuation has doubled from last year.
Dilemma for sellers
The market downturn presents a huge dilemma for advisers thinking of selling their practice. With valuations now lower, some advisers feel that the market may increase during the coming year suggesting they should hold on and benefit from the possible rise. What if it doesn’t pick up and the market drops a further 20% which many experts are suggesting? What if it plateaus for 5 years? Greenspan’s comment “1 in a century event”, Foxtel commentators saying “even professional investors are fleeing” and business commentators are suggesting 5 years before recovering, doesn’t inspire confidence. With bank cash rates at 8%, a seller could take their equity today and get a guaranteed 16% increase over the next 2 years rather than further erosion of their business. Investors are asking their advisers the very same question today. It’s a real dilemma and forcing those advisers to stay working even though they’ve had enough and are suffering from health problems and stress. The average age of advisers is still increasing therefore more practices are coming onto the market. If you wish to consider selling your financial planning business just click on the link Valuation Questionnaire. Radar Results provide a confidential consulting service to our buying clients.
Radar Results will be attending this year’s FPA National Conference from 20 November as sponsors and will have an information booth in the Trade Expo section. Associates from our Newcastle, Melbourne and Sydney offices will be attending along with principals from our Head Office. Phone me if you would like to meet me at the FPA Conference. Ph 02 4384 5670.
Radar Results are sponsors at this year’s Association of Independently Owned Financial Planners (AIOFP) Conference to be held on the Gold Coast in 2 weeks from now 1st to 3rd October. Matt Taylor from our Melbourne Office and I will be attending the Conference and will be available to meet any Queensland advisers whilst we are there. You may like to discuss the value of your business or consider buying another FP business whilst prices are low. Email me if you would like to meet for a private discussion about your FP business. firstname.lastname@example.org