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.