Price Guide March 2021

 Radar Results Price Guide to March 2021: –

Revenue Type Recurring Revenue Multiple
Investment and super clients (aged 80 yrs+) 0.8x to 1.0x
Investment and super clients (aged 65 -79 yrs) 1.7x to 2.2x
Investment and super clients (aged up to 64 yrs) 2.2x to 2.7x
Risk clients (under 55 yrs) 2.2x to 2.7x
Risk clients (aged 55 – 60 yrs) 2.0x to 2.3x
Risk clients (aged 61 yrs+) 1.0x to 1.5x
Mortgage clients – home loan trails 1.9 to 2.7x

Previously 1.8x – 2.5x

Accounting fees – business clients 0.90 x to 1.2x

Previously 0.75x to 1.2x

Accounting fees – individual returns 0.5x to 0.9x

The multiples above can vary depending on the terms offered by the vendor to the purchaser when selling, the location of the vendor’s clients, the client’s ages and the investment products recommended. The account balances of each client are important to the fee-for-service charge. Average fees per client of between $3,000 to $5,000 per annum command the higher multiple.

Multiples paid for risk books or insurance-revenue based practices will depend on the client’s occupation, age, premium size, policy type and geographic location. The multiples displayed above are for high-quality risk clients with ages of between 35-50 years, where the policy owner is a small business owner or a professional based in a capital city.

May 2020 Newsletter

The main impact to the value of financial planning practices is from the Royal Commission Report released in Feb 2019 and the additional red tape that followed the recommendations. The banning of grandfathered trail commissions from Jan 2021 has had an immediate impact with as much as 25% of the recurring revenue from some practices disappearing. The strategy of moving these grandfathered clients to a fixed fee type client can be time-consuming and problematic, but not impossible.

The Corona Virus has not seen any substantial change in valuation multiples, whether it’s a multiple of normalised EBIT or recurring revenue. The share market crash of Feb-April 2020 has seen values diminish where the fees are connected to the Funds Under Management (FUM). Some practice revenues are down between 5% and 20% depending on the client’s exposure level to shares. 

Radar Results consultants around Australia have reported that price multiples being paid for financial planning practices have softened due to the attitude of buyers in the current environment.

Another factor that has lowered planning practices values is the number of sellers compared to buyers. It’s a buyers market and has been that way now for about 18 months. There have been thousands of planners either sacked, told to move to another licensee or given a Buyer Of Last Resort (BOLR). Further, many don’t wish to do the FASEA exam, and certainly, they don’t want to commence a 4-year University course. With the average age of planners estimated to be 60 years or over and started their careers and businesses 25 to 35 years ago, many have had enough and wish to either retire or have a sea-change.

What’s in demand

Accounting practices are in significant demand, and prices remain steady.

SMSF administration fees are now selling for around $1.50 per $1.00.

General insurance registers or businesses are also hard to find for our buyers.

Radar Results has moved up the price paid for home loan books. Like accounting businesses, Radar Results do not have enough loan books to sell.

Revenue Type Recurring Revenue Multiple
Investment and super clients (aged 80 yrs+) 0.8x to 1.0x

 

Previously 1.0x to 1.2x

Investment and super clients (aged 65 -79 yrs) 1.7x to 2.2x

 

Previously 1.8x to 2.3x

Investment and super clients (aged up to 64 yrs) 2.2x to 2.7x

 

Previously 2.3x to 2.8x

Risk clients (under 55 yrs) 2.2x to 2.7x

 

Previously 2.3x to 2.8x

Risk clients (aged 55 – 60 yrs) 2.0x to 2.3x
Risk clients (aged 61 yrs+) 1.0x to 1.5x
Corporate super plans – commission switched off Negotiable
Grandfathered investment trail commissions Nil

 

Previously Nil to 1.0x

Mortgage clients – home loan trails 1.8x to 2.5x

 

Previously 1.8 to 2.2x

Accounting fees – business clients 0.75 x to 1.2x
Accounting fees – individual returns 0.5x to 0.9x

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 eight months to May 2020.

Radar’s Price Guide May 2020

September 2019 Price Guide

Radar Results Price Guide to September 2019: –

Revenue Type Recurring Revenue Multiple
Investment and super clients (aged 80 yrs+) 1.0x to 1.2x
Investment and super clients (aged 65 -79 yrs) 1.8x to 2.3x
Investment and super clients (aged up to 64 yrs) 2.3x to 2.8x
Risk clients (under 55 yrs) 2.3x to 2.8x
Risk clients (aged 55 – 60 yrs) 2.0x to 2.3x
Risk clients (aged 61 yrs+) 1.0x to 1.5x
Corporate super plans – commission switched off Negotiable
Grandfathered investment trail commissions Nil to 1.0x
Mortgage clients – home loan trails 1.8 to 2.2x
Accounting fees – business clients 0.75 x to 1.2x
Accounting fees – individual returns 0.5x to 0.9x

The multiples above can vary depending on the terms offered by the vendor, actual location of the clients, client ages and the investment products recommended. In relation to multiples paid for risk books or insurance-revenue based practices, the client’s occupation, age, premium size, policy type and the geographic location of the clients is critical. The multiples displayed above are for high-quality risk clients.

Price Guide – March 2019

Revenue Type Recurring Revenue Multiple
Investment and super clients (aged 80+ years) Fee for service 1.0x to 1.2x
Investment and super clients (aged 65 -79 years) Fee for service 1.8x to 2.5x
Investment and super clients (aged up to 64 years) Fee for service 2.5x to 2.8x
Risk clients (aged under 55 years) 2.5x to 3.0x
Risk clients (aged 55 – 60 years) 2.0x to 2.5x
Risk clients (aged 61+ years) 1.0x to 1.5x
Corporate super plans – commission switched off* Negotiable 
Corporate super plans – commission converted to a flat fee for each employee 1.5x to 2.0x
Grandfathered investment trail commissions 1.0x to 1.5x
Mortgage clients – home loan trails 1.7x to 2.0x
Accounting fees – business clients 0.75 x to 1.2x
Accounting fees – individual returns 0.5x to 0.9x

Grandfathered trail commission clients (Down another 33%)

Grandfathered trail commission clients (Down another 33%)

Radar Results (Radar) had seen recent sale transactions of grandfathered trail commission clients trade between 1.5x and 2.0x the annual trail amount, but now that the Royal Commission has recommended trails cease on 1 Jan 2021, Radar Results believe the multiple has now fallen further.

These books are most likely to trade between 1.0 times and 1.5 times trails, giving buyers approximately 22 months of income. Previously these had been selling for as high as 3 times trail, but more commonly at a high of 2.7 times trail during the period 2013-2017. In 2013 these trail commissions books were sought after because no FDS (Fee Disclosure Statement) was required and the Opt-in requirement for new clients from 1 July 2013, didn’t apply. Radar Results expect a lot of grandfathered books to now come onto the market for sale.

The Royal Commission may not have explained the reasoning behind the recommended cessation of the trail commission, except to say it’s conflicted. They also feel that the financial planners have been receiving revenue without providing a service. Whilst in many situations this is correct, it’s not the situation across the industry. The Royal Commission would like the financial planners who own grandfathered clients, to make contact where possible, and try and convert them into fee-paying clients. If the grandfathered client is receiving a service already, then the trail commission needs to be changed to a fee, paid by the client and not by the product provider.

The principal of Radar Results, John Birt said, “I feel sorry for those planners who had borrowed money over the past 5 years to specifically buy grandfathered trail commission clients, thinking they would have an income for life.”

Radar Results was told that banks are not placing any value on these grandfathered clients now; basically, they do not see them as an asset. Radar Results does not hold this view, as with some effort, clients can be moved to fee paying.

Risk Insurance Registers Up and Down

Risk insurance registers up and down

Radar Results has seen prices paid for risk insurance books move in both directions. Risk books can include life insurance, income protection and trauma insurance (sometime referred to as critical illness cover).

It appears that financial planners who own life books at the smaller end of the market, $100K to $200K of recurring revenue (RR), are looking to sell them now rather than wait for the findings and report from the Royal Commission. This is because the findings of the Royal Commission when released in Feb 2019, may shake up the market. Certainly, the higher education requirements are also scaring planners into making an early exit, not to mention the lower up-front commission system and the new two-year claw-back period for commissions. Radar Results has seen prices paid for smaller risk books move been 2 times and 3 times the annual recurring revenue (RR).

At the other end of the market, large risk insurance businesses of say $1M to $3M in annual RR can command far higher multiples. Last year banks’ lending to this larger sector of the market, funded clients to buy these high-end risk books at an average of more than 3.5x the RR.

Some banks have said that they can’t lend enough money to financial planners for acquisitions, but unfortunately, they have also increased the minimum loan that they will approve to $1M.

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.