Insurance registers in high demand

Life insurance registers continue to be in extreme demand from financial planners who wish to expand their business. These registers, commonly called “books of business,” would include life insurance, trauma or crisis cover policies and income protection. To date the main demand has been from capital city based advisers although regional based advisers are also after these types of books.

“One swallow doesn’t make a summer”

Some advisers are now predicting an increase in their recurring revenue of up to 50% for the next few years. It’s nice to be optimistic, but it sounds like 2007 again. It could be a good time to take stock of where your business is currently, and factor in either no increase in revenue, or a fall in revenue due to market downturn. However, one way to guarantee an immediate revenue increase is to buy a client base, as long as the price is right. But what is the “right price” multiple you should pay today?
Recently there’s been publicity surrounding particular acquisition multiples that have been paid to sellers. This publicity can set a dangerous precedent. Advisers, who may be thinking of selling and feel summers here, could be bitterly disappointed by the end of negotiations! Advisers who have wanted to sell their business in the past have used Radar Results to provide them with an appraisal of what it’s worth. Their own price expectation may be based on a recently published “one off “sale result at a high price multiple. The adviser identifies with this sale price multiple, and expects to achieve the same result. What’s that saying; one swallow doesn’t make a summer?
Possibly the high recurring revenue multiple may be influenced due to exceptionally generous terms offered by the seller, like a 5 year payout term. Or the reverse, 100% upfront payment for your business, no transition work offered and no clawback provision which would make the multiple reduce spectacularly. I recall when Radar first provided appraisals, the price paid by our client reduced by over 20% because he offered a purchase price 100% upfront for the financial planning business. 
Setting a high price expectation to attract sellers is almost like a real estate agent desperate get a listing and provides an appraisal that’s totally and commercially unrealistic. At first you believe them, only to find out months later, it’s false. You then find yourself having to accept a far lower price, the salesman still get’s his commission, and he never has to face you (the vendor) again.  This isn’t helping advisers leave the industry in a caring and respectful manner. It also can leave the vendor with resentment from being under-valued, and with a bad taste in their mouth thinking they should have got more for their business. If you’d like an appraisal for your planning business or client register, just click on  Appraisal Questionnaire.
A well priced financial planning business can sell in a few weeks, or even sometimes sooner. For this to happen you must also be located in an area or region where there is high demand, otherwise you may remain unsold for a longer period. Some banks are still not that keen on providing finance associated with the purchase of financial planning practices, and others limit their lending to 1.5x to 2x the recurring revenue, or 75% of 5x EBIT. These limitations have been in place since early 2009 and make the purchaser provide a higher level of cash or security to secure the finance. This has also affected industry prices.

If you’re planning to sell your financial planning business you’ll need to be aware of some obvious and not so obvious deal breakers.  Besides price and terms being the obvious ones, there are some surprises in store for the unwary seller.
If you’re an Authorised Representative of an AFSL and looking to sell, Radar has had buyers come back saying “my dealership is not happy with the compliance of the vendor’s business” or “my dealer doesn’t like the products they’ve been using”.  A seller may impose a deal breaker themselves such as “I’m happy to sell but you must join my dealership”.  Another deal breaker isolated to a vendor’s business that has multiple partners would be the requirement to buy-out one of the partners. This can stop many buyers from getting past first base.

Consultants like Radar Results can introduce sellers to a matched buyer; matched on location, price, terms and business style. Radar may then be able to also arrange an indicative finance approval to see if the buyer qualifies before moving too far into the transaction. Radar also canvasses and identifies trouble spots in a transaction well before they appear.

But there are the less obvious deal breakers If your business is run by a company then the ownership of the clients need to be confirmed.  Are they owned by the adviser, the private company or some other entity, usually a trust?  If the clients are owned by a company, do you want the buyer to acquire the company shares, effectively taking over the company and its responsibilities? Usually the buyer’s answer is no, so the deal stops immediately.
Another deal breaker could be the lease on the vendor’s office. The seller may want the new owner to take on this lease, thus keeping the clients going to the same location, enhancing client retention and passing on the cost to the buyer. Not a problem if the buyer needs an office; likes your office and feels there’s a commercial advantage in taking on the lease. However, often buyers already have their own office and only require your client’s revenue to add to their bottom line. Buying the clients is one thing, taking on a lease is quite another. This can be an instant deal breaker.
Staffing is another possible deal breaker. Often a mature business looking to expand already has adequate staff. The vendor’s push for existing staff or family members working in the business “to go with the business” can be a deal breaker. As well, the retiring adviser may want a salary for several years after signing the contract and depending on how much they ask for, and for how long, can jeopardize the sale. I’ve seen qualified experienced planners ask for as low as $60,000pa and up to $250,000pa.
Within the terms of a sale, a claw-back or rise and fall clause can be negotiated.  A sale without any claw-back provision can cause a buyer to shun the deal day one. Transition of the client relationship to the new owner is usually required by the buyer, and if this is not being offered, the transaction may never start.
As you can see, there’s a lot of information and questions that need to be answered upfront to save time and effort from both the buyer and the seller - and these questions are not always obvious.

Matching buyers and sellers price expectations when selling a financial planning business can be difficult. In the current economic climate some sellers may feel that a buyer is being opportunistic. On the flip side, and with increased compliance and legislative risk, some buyers feel that asking prices are too high. Price expectations between buyers and sellers can cause “price mismatch” leading to negotiations being delayed or even fail.  This can waste resources when attempting to achieve a successful acquisition for the buyer.  It can also cause stress and anguish for a seller when a sale is not achieved due to “price mismatch”.  

Buyers and sellers are sometimes “worlds apart” in their price expectations so Radar Results consultants help both parties work towards a fair price to ensure a transaction eventuates. Matching price expectations is one of the most important roles that Radar can play in a transaction. Sometimes a buyer may pay their maximum price due to synergies and opportunities achieved by acquiring the new business. Sometimes a vendor may sell at the lower end of their price range to complete a transaction in a timely fashion.  Irrespective of how a transaction plays out, engaging a consultant with experience in facilitation can ensure the sale is both commercial and more importantly, completed.

By Matt Taylor

New Perth Office

Introducing our New Associate - Natalie Egan  
 
Natalie has 20 years experience in the financial services industry. Her experience includes heading up a funds management division, National Distribution Manager and General Manager. Natalie was responsible for marketing, research, technical and public relations. Natalie’s past employers include Great Southern, MLC/NAB group and Financial Synergy. Natalie has a Diploma of Financial Planning and Diploma of Financial Advising (FINSIA).
 
Natalie will manage Perth and surrounding areas on behalf of Radar Results, helping buyers locate financial planners wishing to sell their business. Natalie will be a key Associate in WA representing our 6th national office. 
 
Please contact Natalie Egan on:
 
Phone: 0400 601 114      
Email - natalie@radarresults.com.au

Radar now provides a professional valuation service by a Registered Valuer who’s on the panel of major banks.  Adviser feedback to Radar indicates fees of between $5000 and $7000 are being charged to value a planner’s business and as the value of the firm increases, so does this fee.  Radar has a flat fee of only $2950 plus GST irrespective of the practice’s value.
 
Radar Results will provide a registered valuer’s report for a flat fee of $2950 plus GST for any financial planning business, pure insurance/risk business, mortgage business, accounting practice or any combination thereof.  The valuation can be finalized within a few days if the seller provides timely and comprehensive information to Radar.
 
Radar’s valuation service provides a substantial saving; at least 40% lower when compared to current industry prices.  This benefits the planning industry as a whole, making a bank approved registered valuation much more affordable for planners.  Click on this link Registered Valuation Questionnaire and complete the questionnaire to register your interest in receiving a valuation of your practice. 

Free Information Memorandum and Appraisal

Radar Resutls also provides a free Appraisal and Information Memeorandum (IM) preparation service for sellers.  Often accountants and brokers will charge up to $4000 for an IM to be prepared.
 
To privately discuss our fee IM or Appraisal service just click on Confidential Phone Enquiry or phone me on 02 4384 5470 or contact one of our five national offices.
 
For more information on Radar’s services please go to our website. www.radarresults.com.au

The number of financial planners who have approached Radar Results wanting to sell their business has increased by 50% from January 2009. We had 42 practices for sale in January and now have 63 serious sellers. Based on fee revenue and purchase numbers, the last quarter (July to September) was Radar’s best ever result.
 
Michele Conroy, Operations Manager and part owner of Radar Results expects nearly 100 practices to be purchased by Radar clients during 2010. Michele said “that’s about 20 practices per office per year, not allowing for the new office that will shortly open in Perth.”
 
The number of valuations provided to the financial planning industry by Radar Results has been lower than compared to the same period last year, although for the last 3 months the rate has picked up to 15 valuations per month. This is a good barometer for increased activity in the FP buying and selling sector from now till Xmas.
 
Since commencing business in 2005, Radar Results has prepared 319 valuations of which 118 have indicated they wish to sell in the next 1-3 years. Our records indicate that for every 4 valuations we do a sale is imminent with the transaction usually taking place within a 3 month period.
 
Interestingly, this year, several of our buying clients “turned around” and actually sold their financial planning business internally to another Radar client. This is somewhat rare and suggests the pressure the planning industry has been under for the past two years, effectively turning buyers in sellers.

New Sydney Office - Mosman NSW

 Introducing our New Associate - Patrick Walford

Patrick has over 10 years experience in the financial services industry in a variety of middle management, practice management and operational roles. Patrick was responsible for the support and growth of a national financial planning group, helping its advisors achieve their business goals. This included the development and implementation of a tailored and structured Practice Management Program.

Most recently Patrick was responsible for building a vibrant financial planning division within a multi-disciplined Sydney practice. He was also the State Manager for this leading national financial planning group.

This skill and knowledge of the planning industry will help Sydney based clients of Radar Results.
 
To contact Patrick Walford please call 0423 867 994 or email patrick@radarresults.com.au