Is Now the Right Time to Sell?

Every financial planner eventually wants to sell their business but sometimes they wait too long and their estate ends up contacting Radar Results. This is not the best scenario, as it tends to sell for half price. Last year our clients purchased several deceased estates, but it’s not our preferred outcome.
Let’s look at “is now the right time to sell.”Whether your reason for selling is for a seachange, age based (retirement), poor health or just financial pressures, is now the right time? Often you can benefit from making the right decision at the right time, or is that called luck. Planners who sold two years ago (before the Global Financial Crisis) would consider themselves very lucky.
The situation now from two years ago is quite different and planners need to consider the following issues:- 

  Sell sign
1.    ASIC’s recent recommendation to Government to ban all trail commissions, volume bonuses and upfront commissions on any investments including superannuation contributions. Whist it is likely that there will be a grandfathering provision to protect the current value of planning firms, over the long term planning firms may have to provide clients with an invoice similar to accounting practices and lawyers. Some potential buyers may not like this evolutionary change which may affect the future value of your practice.
2.    Finance has become a real issue of late with banks becoming reluctant to lend for acquisition of FP practices. I’m told that banks now have FP businesses ranked as the second highest risk category for lending and this may even get worse before it gets better.
3.    FP prices have fallen in both multiple and revenue. Whilst this is no surprise, prices may deteriorate further as more planning firms come onto the market.

There are other reasons why “now may be the right time to sell” but certainly the three above appear the most compelling. I’m concerned about client loyalty to the new planner (new owner) evidenced by FP clients leaving after a sale has completed. Up to 10% of FP clients over the past year have moved away from some FP practices acquired by Radar clients. Whilst there’s always this risk when you sell, after two years of double digit negative returns on superannuation, FP clients are wondering if she should wander.
Another area which may get worse is Professional Indemnity Insurance (PI). With all the class actions that are in progress and more to follow, insurers are “running away” from our industry. A Radar Results client received his renewal notice last month showing a 400% higher premium than the previous year. This was an accounting based conservative planner. With the impact of these issues on your business, you have to ask yourself what the future looks like for the planning industry and its clients. Maybe
the right time to sell is now.