New Associate for Sydney & ACT – Susannah Hart

Radar Results has helped many financial planning practices to sell their businesses over the past 12 years. Susannah Hart has been invited to join our team to further service the Sydney and ACT market.

Susannah had been in the financial services’ industry for over 25 years with her second career starting in an Accountant’s office, then transitioning the Accountants into Financial Planning.  A RetireInvest Franchise owner and Authorised Representative, she later moved into the corporate arena as a BDM, then as State Manager with Centrepoint Alliance (previously PIS), Business Growth Manager for the MLC Dealer Groups (Garvan, Godfrey Pembroke, Apogee, Meriton, NAB FP) and more recently, Count Financial Group’s National Development Manager.

Radar Results owner and Principal, John Birt, believes that Susannah’s experience and connections will assist buyers and sellers along their respective journeys.

John Birt, Principal of Radar Results, believes that the next two years will be very active, with many financial planners considering the sale of their business in the short term. According to Birt, “Advisers are definitely looking to sell before the new educational requirements force them out of the industry, and the abolishment of grandfathered commissions is likely to speed this up.”

Radar’s Price Guide

 

An indication of prices as at August 2018

Revenue Type Recurring Revenue multiple
Investment and super clients (age 80 yrs+)  1.0x to 1.2x

(Down from 1.8x)

Investment and super clients (age 65-79 yrs) 1.8x to 2.5x
Investment and super clients (age up to 64 yrs) 2.5x to 3.0x
Risk clients (under 55 years) 2.5x to 3.0x

(Down from 3.5x)

Risk clients (over 55 years) 2.2x to 2.6x

(Down from 2.8x)

Super clients – commission switched off Neg*
Corporate super clients – flat fee per employee 1.5x to 2.0x
Cs and Ds – mix of both risk and investment 1.5x to 2.0x

(Down from 2.7x)

Mortgage clients – home loan trails 2.0x to 2.5x
Accounting fee – business clients 0.75x to 1.2x
Accounting fee – individual returns 0.5x to 0.9x

* No transactions

The above multiples can vary depending on the terms offered by the vendor, geographic location of the client, age of the client and the investment products within the client’s portfolio. Multiples paid for risk books or insurance revenue-based practices will vary depending on the client’s occupation, size of premium, type of policy (stepped or level) and geographic location of the client. The multiples displayed above are for high-quality risk clients. The table above is based on market activity over the past twelve months to August 2018.

Life insurance price multiples lower (Down 8%)

Radar Results has seen prices paid for risk insurance client registers reduce for two reasons. Firstly, the Life Insurance Remuneration Act effective from 1 January 2018 has reduced the amount of upfront commission paid on new life insurance policies, income protection policies and trauma policies down to 80% for this year and then down to 60% for 2019. Previously, insurance companies were paying up to 120% of the first year’s premium as a commission. Secondly, the responsibility period for the commission payment has been pushed out to two years after previously being just one year. The impact of The Royal Commission into the financial services sector and the higher education standards looming has influenced more businesses to come to market. With many more sellers now in the market, there’s a larger choice, and a decline in prices now offered. There is more risk insurance businesses on the market now than at any other time that I can recall.                                                                       

Investment & superannuation clients 80yrs+ (Down 30%)

The Royal Commission has again spooked the market with investment clients (pension) and superannuation clients 80 years old and above selling for far lower prices than earlier in the year. Some product providers of legacy products have been switching off the trail commission that had been paid to licensees and advisers for these clients. Recently the sale price of risk insurance register was reduced by over 13%, or nearly $100,000 as a result of legacy product commission being turned off. As explained by the product providers, this was done in the best interest of the clients. 

Grandfathered trail commission – C & D clients (Down 25%)

Radar Results has seen recent sale transactions trade between 1.5 times and 2 times the net trail commission. Previously, these had been selling for as high as 3 times, but more commonly at a high of 2.7 times. Once again, the Royal Commission has prompted some industry bodies to recommend that they be phased out or even cease immediately. These trail commission registers in 2013/14 were sought after because no Fee Disclosure Statement (FDS) was required and the opt-in requirement for new clients from 1 July 2013, didn’t apply. Even some major banks that used to lend on this asset class have done a back-flip and now don’t lend against these trail books.

 

Radar Results Price Guide

An indication of prices as at 1 March 2018

Revenue Type Recurring Revenue multiple
Investment and super clients (age 80 yrs+) 1.0x to 1.8x
Investment and super clients (age 65-79 yrs) 1.8x to 2.5x
Investment and super clients (age up to 64 yrs) 2.5x to 3.0x
Risk clients (under 55 years) 3.0x to 3.5x
Risk clients (over 55 years) 2.5x to 2.8x
Super clients – commission switched off Neg*
Corporate super clients – flat fee per employee 1.5x to 2.0x
Cs and Ds – mix of both risk and investment 2.0x to 2.7x
Mortgage clients – home loan trails 2.0x to 2.5x
Accounting fee – business clients 0.75x to 1.2x
Accounting fee – individual returns 0.5x to 0.9x

(Changes since March 2017 in red)

* No transactions

The above multiples can vary depending on the terms offered by the vendor, geographic location of the client, age of the client and the investment products within the client’s portfolio. Multiples paid for risk books or insurance revenue-based practices will vary depending on the client’s occupation, size of premium, type of policy (stepped or level) and geographic location of the client. The multiples displayed above are for high-quality risk clients. The table above is based on market activity over the past twelve months to 1 March 2018.

6 MONTHLY PRICE GUIDE

RADAR’S SIX MONTHLY PRICE GUIDE  

  An indication of prices as at 31 March 2017

(Changes since 31 October 2016 in red)

 

Revenue Type Recurring Revenue multiple
Investment and super clients (age 80 yrs+)  1.0x to 1.8x
Investment and super clients (age 65-79 yrs) 1.8x to 2.5x
Investment and super clients (age up to 64 yrs) 2.5x to 3.0x
Risk clients (under 55 years) 3.0x to 3.5x
Risk clients (over 55 years) 2.5x to 2.8x
Super clients – commission switched off Neg*
Corporate super clients – flat fee per employee      1.5x to 2.0x
Cs and Ds – mix of both risk and investment 2.0x to 2.5x
Mortgage clients 2.0x to 2.5x
Accounting fee – business clients 0.75x to 1.2x
Accounting fee – individual returns 0.5x to 0.9x

 

* No transactions

The above multiples can vary depending on the terms offered by the vendor, geographic location of the client, age of the client and the investment products within the client’s portfolio. Multiples paid for risk books or insurance revenue-based practices will vary depending on the client’s occupation, size of premium, type of policy (stepped or level) and geographic location of the client. The multiples displayed above are for high-quality risk clients. The table above is based on market activity over the past six months to 31 March 2017

 

THE MAIN CHANGES

 

OLDER FP INVESTMENT CLIENTS:

The main changes to the Radar Results Price Guide has been to the category titled, ‘Investment client’s 80-plus years of age’. We have seen client registers change hands at prices of up to 1.8 times the recurring revenue (RR), previously 1.5 times. Basically, demand for these clients has increased due to a shortage of registers for sale. Even now, the older client bases in the marketplace are looking attractive. Clients aged in their late 70’s have also seen higher demand, attracting prices between 1.8 to 2.5 times the RR.  Multiples of RR of up to 2.5 times are being paid for registers, where the average age of the client is close to 65 years.  

CORPORATE SUPER PLANS (FLAT FEE):

A sector where price multiples have fallen is the flat fee corporate superannuation area. In place of the former product provider commission payment system, some licensees are now paying advisers a flat fee per employee. This sector has seen minimal sales at lower multiples. As a result, the market multiple rate of 2.5 times RR has been moved down to a maximum of 2.0 times.

CORPORATE SUPER PLANS (NO COMMISSIONS):

There is now debate as to how much corporate super client registers are worth after the commissions have been turned off and there’s no arrangement in place with their licensee for a flat fee payment. Contrary to the MySuper principles contained in the FOFA legislation, there are instances in which commission payments will continue, where most of the employees have made an investment selection rather than just accepting the MySuper default option.

THE VALUE OF ACCRUED DEFAULT AMOUNT (ADA) CLIENTS:

Radar Results has been asked to place a value on ADA clients, where they have moved away from an employer’s sponsored super plan and left the balance under that employer’s plan. Some call these clients inactive, dormant or de-linked members of employer sponsored super plans. Their information may or may not be up-to-date, and can usually be accessed by the existing adviser by going to the product manager’s portal.

There are thoughts that ADA clients may be a liability if retained by the existing adviser, while others feel they are an asset and can be contacted and converted into quality FP clients.

ACCOUNTING FEES:

Prices being paid for lower end business accounting fees like BAS return work has fallen from 90 cents to 75 cents. At the higher end, management accounting fees, audit, trust and Self-Managed Super Fund (SMSF) administration fees have either stabilised or in some cases increased. Demand is such that price multiples could escalate to $1.50 in the $1.00 for quality accounting businesses primarily in the CBD and metropolitan regions. Radar Results has seen $1.80 in the $1.00 paid for SMSF compliance fees.

MORTGAGE BOOKS:

Demand for mortgage books will see the current price move further up in the next six to twelve months. Currently, the 2.0 to 2.5 times trail appears to be the market price, however, in instances in which there has been 100 per cent payment upfront, 2.7 to 2.8 times trail with no claw-back has occurred. I would not be surprised to see 3.0 times the trail become a common price paid by 2018/19.

RISK CLIENTS:

There is still a huge demand for risk clients, a demand which has not been dampened by the proposed new Life Insurance Legislation. Most demand has been for book sizes of $150,000 to $500,000 in annual renewal commissions. The age of the clients is important, and the younger the clients, the higher the price multiple. Whether the premiums have been written as stepped or level doesn’t appear to make a price difference.

Highest Prices Ever

RECESSION 2017-18

According to then Prime Minister Paul Keating, the last recession we had was ‘the one that we had to have’. During this recession, interest rates rose to 18%, loan delinquency rates hit 12% and unemployment levels hit nearly 11%.

Expectations are that we are in for another bumpy ride next year. While I’m not sure if the recession of the 90’s will be repeated, property prices are tipped to suffer.

With respect to investing, overseas fund managers have Australia on a ‘no-go list’, meaning home and apartment prices are the highest in the world when compared to our incomes. Bar New

South Wales, every state has an over-supply of dwellings, with an additional 200,000 dwellings to be completed over the coming year, and 217,000 the year after. This oversupply and failed settlements could lead to apartment prices falling by 20%. Developers need to sell the unsold stock to meet their debt obligations.

Many financial planning practices have been advising their clients to buy property, particularly within their Self-Managed Super Fund. What effect would property prices moving down 20% have on the client’s overall financial situation, and would the client have a case against the planner’s AFSL or licensee? How will a recession impact financial planners, the financial industry and more importantly their clients? Being heavily geared into just one asset class, rising interest rates, higher unemployment and lower property prices are a deadly mix. 

HIGHEST PRICES EVER

Today, prices being offered for these businesses or client registers are the highest they have been in eight years. This is primarily due to the low interest borrowing rates and finance being plentiful. AMP has just changed their Buyer of Last Resort (BOLR) formula, now placing non-AMP products in the same category for valuation as AMP products. I believe this applies to the Charter and Hillross practices as well.

AMP Bank is offering their financial planners loans to expand, some at interest rates of 7% fixed, principal and interest over 10 years, and preferably they’re being encouraged to buy non-AMP practices or client registers, and move them into the AMP practice. Once again, this includes Hillross and Charter. This high demand by AMP linked advisers is forcing up the prices paid for financial planning activities.

BABYSITTING

Another factor that has forced up prices being paid for financial planning practices is the internal need by licensees to retain their own advisers, otherwise known as ‘baby-sitting’. Some medium-to-large licensees have offered to buy the practice themselves, as a temporary hold until they can find another adviser to join their group, and then on-sell it. The existing clients and associated revenue is retained.

LOAN BOOK TRAIL PRICES RISE FURTHER

In the past three years, loan book prices have nearly doubled, with some now selling for between two and three times the trail. Some mortgage brokers have sold their trail books for over three times the trail, however, in these situations there’s a correlation between the aggregator and the loan broker, with the most sought after loan books being aligned to aggregators in PLAN, FAST, Connective, AFG and Choice. Cross-selling opportunities is the main reason for this price rise, along with low supply. So far this year, clients of Radar Results have purchased fewer than 10 trail books, but if I had 100 trail books, our clients would’ve purchased them all. Financial planners really want to buy loan books as well, and tend to outbid the mortgage brokers.[layerslider id=”1″]

ACCOUNTING PRACTICES UNDER PRESSURE

Accounting practices haven’t seen the same demand for their practices as financial planners and loan brokers have seen for their businesses. Many accounting practitioners, whether a sole practitioner or partnership, seem to have higher levels of business costs, such as salaries, and cannot pass the full effect onto their clients. These days, taxation clients are more demanding, more selective with the services they require and more critical of the value for money concept.

Accountants need to do more than just lodge tax returns. Many are under- charging, which I feel is a confidence issue. Accountants that provide advice, administration and compliance work to their SMSF clients are either over-charging by an exorbitant amount or in many situations not charging enough. The gap is enormous, with $895 per annum to do the full year’s work for a SMSF, and $8,000 per annum to do basically the same work.

Prices paid for individual tax return clients, commonly called ‘I returns’, have fallen. The main steadier for accounting practice prices is the demand by financial planners looking to reach a large number of prospects to sell loan/s, planning services, SMSF set-up and advice, along with risk insurance products.