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.
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.
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.
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.
Radar Results has received a number of requests from financial planners looking to buy High Net Wealth (HNW) clients. To clarify, a HNW financial planning client can be described as one with investments under management of at least $1 million. Some advisers would say that an investment portfolio of this size is not particularly high nowadays. But, if both the husband and wife each own at least $1 million, then the family has $2 million in funds under management (FUM).
Depending on age, prices paid recently for these types of HNW clients can range from three to four times the annual fees. To receive a price multiple in this range, the preferred ages would be between 40 and 60 years. The Sydney CBD and north-west regions of Sydney seem to show the highest demand for this client style.
NON-OPT-IN WORTH MORE
When you buy a financial planning register or business which has clients that were established as a new client before 1 July 2013, they will not require an opt-in letter and are preserved as being non-opt-in clients. The pre-July 2013 clients will not require any opt-in letters to be sent, even if the adviser and licensee are completely new as a result of the sale. Demand for these non-opt-in clients has actually increased, and prices reflect this higher demand.
Interestingly, if a client moves from one adviser to another without being part of a sale transaction, then the grandfathering of the opt-in disappears. A letter must then be sent out every two years requesting confirmation from the client that they wish to continue with that adviser, and consequently receive the same services for the disclosed fees. If the letter is not returned, fees and commissions must be turned off. A reduced level of service offered to the client or an increase in fees, will also result in the preservation of non-opt-in being removed.