Financial planning values stabilise

The price paid for a financial planning (FP) business seems to be on everyone’s mind; whether you’re a vendor planning to sell, a prospective buyer or a licensee. Naturally, everyone agrees that financial planning businesses reached their pinnacle just before the GFC in 2007/2008; and that since then the prices have been trending down. However, the Future of Financial Advice reform (FOFA) hasn’t had the impact on FP values that everyone thought it would, mainly due to the Government’s watering-down, and therefore, FP values have now stabilised.

I’ve been told by a few people that the value of FP businesses, or client registers, may even increase from now on. I’d like to know on what basis – and why. Grandfathering has been mooted as a reason; but haven’t we always had grandfathering?

As consultants, Radar Results is usually involved with about 50 FP transactions per year. These may include the acquisition of a small client register by a Radar client or the sale of a large financial planning business with $1M to $2M of recurring revenue (RR). Radar also provides consultancy services to licensees wanting to help their Authorised Representatives (AR) grow their business. This can be achieved in two ways: organically, with the introduction of professional business coaches into the practice; or by helping the AR with an acquisition. During 2011, Radar Results and RadarBC (Radar Business Coaching) were able to help Licensees in both these areas. There’s recently been a trend which indicates that FP businesses are merging, in order to save on infrastructure costs and staff.

It’s going to be interesting to see where values move during the next few years and what trends develop within the financial planning industry.

The real cost of FOFA

The real cost of complying with the new Future of Financial Advice (FOFA) rules may be much higher for financial planning practices than the Government had thought; and as a consequence, some of the fundamental reasons for introducing FOFA may not be achieved.

Banning commissions is obviously the most radical change, but unfortunately it has come 20 years too late. Changing the entire remuneration system to fee-for-service is merited and will provide certainty of fees paid to the financial planner; and, therefore, added security for the investor. However, it will be difficult for the public to adopt a fee-for-service system which is similar to that used by accountants, since most financial planning clients are used to receiving advice, and not being invoiced. From 1 July 2012 onwards, the effect of FOFA on financial planning revenues could be damaging.

The annual opt-in cost of $11 per client was the result of research conducted by an actuarial consultancy firm, commissioned by Industry Super. Earlier in the year Treasury officials indicated to a Senate Committee that they had seen industry research which suggested opt-in would cost around $100 per client per annum; possibly even $200 per client per annum.

Irrespective of the opt-in cost, the new opt-in reform will only apply to new clients who join a financial planning practice after 1 July 2012. The grandfathering rules have finally been confirmed and they will help maintain the value of financial planning practices; particularly those with many inactive clients, known as Cs and Ds or ‘orphans’.

Research by our consultancy firm, Radar Results, reveals that each of the 71 financial planning practices selling today contains, on average, 544 clients. When you further analyse the figures, these practices can have up to 5 times more inactive clients than active. Over the past few years many financial planning practices have been selling off their inactive clients, wanting to concentrate only on the higher-revenue clients and ignore the inactive ones.

There’s a concern that the sale of a client register from one adviser to another after July 2012 may stop the flow of trail commission and trigger the start of the opt-in rule. On this matter, a spokesperson from Treasury said, “At this stage, I don’t think that transferring the book would necessarily turn the grandfathered commission off or trigger opt-in, but circumstances might vary.”

Inactive clients are usually not offered any service or advice and can be rated either as a C or D grade client or classed as an ‘orphan’. It’s going to be very difficult to have inactive clients sign a renewal notice; or, for that matter, even find out where they are now living in order to issue a renewal notice. And if the trail commission ceases because you can’t get a renewal notice signed, then the value of the client register may disappear.

Inactive clients can make up a large proportion of a practice’s revenue and the cost to make contact with all these inactive clients may be prohibitive. With grandfathering still allowing for the passive trail commission to continue, there’s little incentive to contact them. When FOFA was first announced, the Government said, via the former Minister for Financial Services, Chris Bowen, “These reforms should ultimately encourage more people to seek financial advice”. I suggest the opposite may occur.

Born out of the inquiry into the collapse of Storm Financial and Opes Prime, the intention of FOFA reforms was to make financial planning advice more affordable to a larger number of people within the community, improve quality of advice and strengthen investor protection by having a less conflicted playing field in relation to commissions and volume bonuses. Unfortunately, the opt-in rule will not encourage more people to seek financial advice and neither will it improve the quality of advice; but it will offer more investor protection and certainty of fees. The ban on commission and other volume-based incentives will be a real bonus for the public and offer a high level of protection. FOFA will improve the quality of advice to the public, but not make it more affordable to a larger number.

Clients of Radar Results have been acquiring inactive clients by the thousands and are taking a positive stance on FOFA, providing service and advice to as many of these clients as possible; and, at the same time, growing their practices by cross-selling other products and services.

The insurance industry and life insurance agents and advisers, who specialise in risk products, are blessed. The FOFA reforms will basically have no impact on them – and rightly so. The reversal on banning risk commissions made common sense. Possibly opt-in may be now be reversed?

The Government’s reforms will have little or no effect on fee-for-service practices, particularly those with only A Grade clients; but the majority of financial planning practices are not pure fee-for-service yet and the reforms may be onerous.

Recurring revenue multiples update

Dear John,


Below is an indication of FP recurring revenue multiples since the 2nd FOFA announcement on 28 April 2011, which is also based on actual prices paid for financial planning practices or client registers since May 2011.


                                                                    City CBD                   Regional and Country


                                                           Recurring Revenue                 Recurring Revenue

                                                                    Multiple                                      Multiple


Investment clients with                              2.5x to 2.7x                               2x to 2.2x

average age over 60 yrs  


Accumulator inv. clients                            2.7x to 3x                                      2.5x  


Risk clients                                                   3x to 3.5x                               2.7x to 3x

(average age under 50 yrs)   


SMSF clients any age                              2.7x to 3x                                  2.2x to 2.5x


Corporate super clients                               1x to 2x                                0.75x to 1.5x


Cs and Ds (Inv and risk)                                   2x                                            1.5x




 The multiples above can vary, depending on terms offered by the vendor, actual location of the clients, client ages and the particular investment products recommended. Other factors that influence the prices paid for a FP business are the number of advisers, number of clients, grade quality of the clients, systems and processes within the practice, fee for service arrangements (FOFA ready or not) and the client value proposition CVP that’s currently being provided.



Accounting practices in big demand


Not surprisingly, a number of financial planners are now looking to acquire accounting practices so they can cross-sell risk, investment, loan and SMSF services. Prices paid for accounting fees can vary from city to regional country areas, with $1 paid for each $1 of annual accounting fees being standard in the city and lower prices for country regions. The Cooper Review has had an impact on prices paid for non-business tax fees (Individual tax returns). If you would like your accounting business valued or appraised, then please contact John Birt 02 4384 5670.





New Adelaide Office

Introducing our New Associate – Andrew MacDonald  
Andrew entered the industry in 1984 following a career as a Land and Business Agent. He became a regional manager with Monitor Money and then in 1989 founded his own Securities Licence, Financial Management Services (FMS), as a joint venture with a CA practice. That year he was elected State Chairman and Board member of ASIFA.

In 1993 Andrew established Symetry, and 6 years later he negotiated a joint venture with Perpetual Trustees that included a large payment to Symetry’s stakeholders. In 2004 the business had $1.4 billion FUM and Andrew participated in the negotiations leading to a sale of the business to the CBA group. In the next year he sold FMS into the WHK group and established a new business in funds management involving Equity Trustees, which raised over $300 million in FUM. During this time he was also a Director of MMC Funds Management and was instrumental in assisting it to grow from $15 million FUM to $560 million. These businesses where sold in 2005. In total Andrew has been involved with 14 transactions, either acquiring or selling financial services businesses.


Andrew is the current Chairman of FinaMetrica, one of the world’s pioneers in financial risk profiling methodologies and systems.


If you wish to contact Andrew MacDonald, Phone 0419 791 020 or Email





RadarBC, a division of Radar Results, now has six of Australia’s best business coaches engaged to provide its unique business coaching program to financial planners. Using RadarBC‘s coaches will increase the value of a financial planning practice, leading to a higher sale price, a shorter succession timeframe for an existing partner, or just making the planning business more profitable. Increased profits can then flow into many areas, ensuring a happier business and a happier personal life for everyone. Clients of RadarBC vary from small boutique businesses, earning at least $500K in revenue, through to larger institutions.


RadarBC is unique, offering a blend of coaching, consulting, mentoring and implementation services to supplement a practice’s operational resources. You pay only for what you need, when you need it. Upfront there are strategy coaches working with the principals and executive team, and mentors who have been there and done it. The strategy plan and set of projects are prepared specifically for your culture, for your development and for your business’s vision; they are designed to increase the value of your business, usually within a time frame of 6 to 12 months. However, you choose the speed and depth of implementation.








Future of Financial Advice (FOFA) reforms and the value of your business

Over the past 2 weeks, as a consequence of the recent FOFA announcements, a number of Radar Results clients have said they will not now pay the same level of recurring revenue, or EBIT multiple, that they were prepared to pay before the FOFA announcements. Depending on the style of the planning business, the products used, the client ages and, in particular, their current fee arrangements; Radar Results has seen a decrease in many financial planning firms’ valuations. Radar Results valuers have reduced EBIT multiples by 0.5X since the recent FOFA announcement, equal to a reduction of approximately 10% of a practice’s value.

In the late 1990s I recall being asked to visit a retiree in Charlestown, Newcastle, who had invested $450,000 with a local planner 3 years earlier and, since investing, hadn’t seen the planner again, although he was working in the CBD some 12 minutes away. The retiree was after some service and wasn’t happy; he had been receiving a quarterly statement directly from the licensee for the funds under management (FUM) that he held. The FUM was held entirely in one Master Trust, and the licensee was being paid an annual service-fee payment of 0.8% or $3,600; so over 3 years the retiree had paid $10,800 to his licensee and planner, and had received basically no service. That’s what FOFA wants to alter; as The Hon Bill Shorten, MP, said in his press release on 28 April 2011, “The policy reflects the need to ensure that advisers do not charge ongoing fees where the client is receiving little or no service.”

Shorten went on to say that “volume rebates from platform providers to dealer groups must cease”. Herding clients into a particular administration vehicle for the financial benefit of the adviser and licensee may not be considered credible. Irrespective of whether there were other reasons for substantially using one particular platform, FOFA will eliminate any temptation for revenue to be paid based on volume.

A concern I have with FOFA is the proposal for a 2 year Opt-in. An annual renewal notice must still be sent to all clients specifying what work was performed by the adviser in the previous year, and what was received by them in fees over that period; as well as providing the same details for the coming year. The only difference from the first reform paper, on 26 April 2010, to this latest announcement (28 April 2011) is the requirement for the client to sign, i.e. Opt-in, every second year. If the client is unresponsive or, in other words, if you can’t find them to sign, you must stop taking the commission, trail or service fee.

 But of far greater concern is the Government’s inability to outline a definite grandfathering arrangement. Grandfathering has been presumed by most advisers to be automatic, however, Shorten’s recent statement that “issues around grandfathering arrangements will still be subject of further consultation” is certainly not what planners wanted to hear. The question is whether life insurance agents, who have been building up client registers for many years, may have a part of their register rendered worthless. Certainly, retail risk policies written inside a personal super plan seem to be in the firing line.

Also, the Government’s FOFA proposals have watered down the adviser’s fiduciary duty to a ‘statutory best interest duty’; stating that they, the individual adviser, will not be held financially liable for any breach of their duty.

Last, but not least, is the Government’s tougher stand on gearing. The 26 April 2010 paper banned any adviser fees being charged against the component of an investment that’s geared, but last week Shorten said “an asset-based fee cannot be charged, even on the ungeared component.” This is certainly an attempt to discourage gearing; and any financial planning practice that has a large component of clients geared may need to take swift action to protect their revenue, and the value of their business.

Valuation changes

Radar Results has seen a decrease in requests for valuations on financial planning practices; however, it’s interesting to note an increase in valuations for divorce and property settlements. Before the GFC, most valuations were for finance applications, or for the lender to check on the equity-to-loan ratio. These days, very few are for this reason.

Whilst the total number of requests for a valuation has fallen to approximately 10 per month, down 31% on 2010, Radar Results has seen a surge in the number of valuations required for divorce.  Another change is the higher percentage of valuations requested to change the shareholding between partners in a financial planning business. Younger partners wish to buy a larger stake in their planning business, and require a valuation by an independent, registered valuer.

A concern within the financial planning industry is that there appear to be valuations prepared by unqualified and unregistered valuers, leading to incorrect pricing, which can, in turn, lead to problems if there is a dispute; and, therefore, a court hearing.

Another concern is that not all valuers are prepared to appear in court or, for that matter, even travel. A valuer providing a valuation for a divorce settlement is often required to appear in the Family Court to answer questions.

Loan books in big demand

Surprisingly, a number of financial planners are now looking to acquire loan books so that they can add additional revenue to their businesses. Cross-selling opportunities are also enhanced. The banks had moved to take much of the loan work back into their branches, which put a squeeze on trails and upfront revenue. The last 2 years had seen the multiple paid for loan book recurring revenues reduce to between 1 and 1.5 times. More recently, and on the back of demand from financial planners, the multiple has increased. If you would like to know more about how much a planner or mortgage writer would currently pay for your book of clients, please email me at

RadarBC – Business coaching for financial planners

In 1995 I hired a business coach and then went on a 2 day business-coaching workshop. From there a new client value proposition was established, and within 6 months my revenue had doubled. I continued to pay my business coach a retainer for the next 7 years. I changed business coaches in 2004, appointing Radar’s current principal coach, Michael Wynter. I’ve been with Michael for 7 years and have since formed Radar Business Coaching (RadarBC), engaging 5 more business coaches.
The main problem I identified with business coaching is that the coach will provide you with advice, but you’re the one that needs to implement that advice. RadarBC provides a Strategy Coach and an Implementation Coach, solving the problem known as FTI, or Failure to Implement. To learn more about RadarBC go to our website

Radar wins marketing award 2 years running

Radar is proud to receive the 2010 All Star Award for the second year running, chosen out of over 400,000 organisations. 

Businesses work hard to build strong relationships with their customers through marketing and some, such a Radar, truly excel in this effort,” said Gail Goodman, CEO, Constant Contact. “We’re proud of the role we play in helping Radar be successful and we look forward to continuing to assist them with their marketing efforts.”

Advisers will pay price for fiduciary duty reforms

Fiduciary duty ‘beefed up’


Fines for financial advisers breaching their fiduciary duty could increase dramatically, moving the current maximum fine of $500 up to $200,000 when new legislation is introduced next month. The Government wishes to amend the Corporations Act to explicitly include a statutory fiduciary duty for financial advisers operating under an AFSL, requiring them to place their clients’ interests ahead of their own.


Currently an authorised representative’s defence is to simply rely on the Licensee’s instructions and advice. If this new legislation is passed, then the authorised representative becomes liable. The proposed reform may place the adviser (authorised representative) in a position similar to that of a company director, where if found to be reckless, the fine under a civil action may increase from a maximum $500, to $200,000. If ASIC also decides to be involved in the complaint, then the new reform will allow for criminal liability, and a prison sentence of up to 5 years. At the moment, it’s not considered a criminal offence if an adviser is found guilty of being reckless, and not acting in the client’s best interest. The new law will allow for court awarded compensation, paid by the adviser to the client.


Media reports have indicated that planners feel that the fiduciary duty that currently exists, is not much different to the one that’s being introduced to parliament next month. In summary, we now have a $500 fine, no jail, no compensation and next year, $200,000 fine, 5 years jail and compensation. It would be interesting to see if any court awarded compensations will be covered by Professional Indemnity insurance if the adviser is found to be ‘reckless’.