Commission ban, compulsory renewal notices and Free workshop for planners leaving the industry.

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Your client’s interests must be placed ahead of your own under proposed legislation issued on 26 April 2010 by Minister Chris Bowen. The new reforms, which apply from 1 July 2012, will place advisers under the Corporations Act in respect to a financial adviser’s fiduciary duty. This is similar to the fiduciary duties and obligations as a company director and may carry the same penalties for breach. Therefore, advisersAFA Logoshouldn’t be too worried about being sued for poor advice under any civil action; the penalty under the Corporations Act may be similar to that of a company director and deemed a criminal offence, with fine and possible jail sentence. Currently you cannot be an Authorised Rep or hold your own licence if you have a criminal conviction. This will certainly beef up the responsibilities placed on financial advisers, their licencees and more importantly, protect the consumer.In relation to trail commissions being banned, compulsory annual renewal notices and these new reforms being retrospective, I pose the following comments and questions:- Existing agreements between clients and their advisers for the payment of fees and services supplied may not be retrospectively affected by the new legislation, however, any “change” in the advice or service offered ie new advice, may well be deemed that a new agreement has commenced. Then the opt-in commences?

 

 

As a consequence of this “change” to the existing agreement and if a new product or investment is implemented for the benefit of the client, then no fees will be payable from the new product, whether trailing or upfront. Therefore, if all clients are reviewed and changes made over several years, basically all trails will disappear. Was this the intention of the Government?

 

If advisers don’t change a client’s investment or strategy for fear of losing their trail, they may be deemed as no acting in the best interest of the client therefore they’ll be caught under the Corporations Act i.e fine, jail, loss of AR or licence.  This is a predicament that advisers may find themselves exposed to and needs industry input and clarification by Bowen.

 

Workshops for planners retiring or just leaving the industry

Radar Results will be holding a series of workshops to help planners leave the industry and understand the complexities when selling their practice or client registers. Specialist lawyers and other consultants will be able to answer all your Relaxquestions. Some of the topics to be discussed are “How to value your business? The role of a lawyer and accountant in the sale. Vendor trade restraints, claw-backs, transition periods, client transfers and information memorandums. First workshop is in Melbourne Tuesday 15th June Boardroom Hall Wilcox Lawyers 12-2pm. Free with lunch provided.

Sydney will be held Tuesday 6th July 12-2pm. Free and lunch provided. To book please email michele@radarresults.com.au or phone Radar’s Operations Manager Michele Conroy on 02 4384 5670. Brisbane and Perth workshops to be held in late July and August 2010.

 
Samantha Aad – Business coach implementation specialist
 
Samantha has commenced working with clients of Radar Results to help them implement their business coaching advice. You may have used a business coach in the past but have you put their advice into action? As Paul Dunn’s boot camps and the Results Corporation Workshops advised during the 80’s and 90’s, the only problem with business coaching is FTI (Failure To Implement). Samantha solves that problem. She implements the strategies for you. So if you have that problem, call Samantha on phone 0414 927 354 or email sam@paraprofessional.com.au.
 
 

 

 

1 in 4 Planners to leave – Radar’s poll results over 700 responses

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After Chris Bowen announced on 26 April 2010 new legislation will be introduced affecting commissions, trails, review fees, volume bonuses and upfront fees, Radar Results conducted a poll. Radar Results polled financial planners and other financial service industry people asking “How will Chris Bowen’s new laws (2012) affect your business plans?”

We received 732 responses with more than half suggesting their business plans would be affected by Chris Bowen’s new reforms with more than 1 in 4 respondents leaving or retiring sooner from the financial planning industry.

Some 12 per cent (87 respondents) said they would retire sooner, 14 per cent (101) said they would sell part or all of their business, and 16 per cent (115) said they would leave the industry. Some 44 per cent (324) would not change their business plans as a result of the reforms

Many suggested it would be positive, allowing them to expand and acquire more practices.

Those polled and said the reform laws would not change their business plans totalled 324, or 44% of the responses.

 

How will Chris Bowen’s new laws (July 2012) affect your business plans?

Number of responses

Response ratio

Retire sooner

87

12%

Sell part or all of your business

101

14%

Expand through acquisition

105

14%

Leave the planning industry

115

16%

No change at all

324

44%

Total

732

100%

Radar Acquire New Division for Accounting Practices

Acquire Logowww.radaracquire.com.au

The group’s operations manager, Michele Conroy, announced a new division will commence this week specialising in the acquisition of accounting practices. The name of the new service will be Radar Acquire.

Conroy said “the demand by Radar’s existing clients to acquire accounting practices has been growing for several years. We see more of our financial planning clients adding accounting practices to their business, and this is a trend that would only continue.”

The group’s managing director, John Birt, has been working with accountants for more than 26 years and he’ll be using his experience to run this new division, Radar Acquire. 

Birt said, “It’s a natural progression of our company (Radar Results) and will complement our existing structure and will be supported by our existing associates nationwide. I see the sale price of accounting firms and financial planning firms overtime moving closer together, particularly with the new fee for service legislation that Chris Bowen wants to introduce.”

Government’s Future of Financial Advice Reforms Paper

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     Office of the Hon Chris Bowen MP
         Minister for Human Services
Minister for Financial Services, Superannuation
               and Corporate Law

THE FUTURE OF FINANCIAL ADVICE
INFORMATION PACK

MONDAY 26 APRIL 2010

To access the Government’s Future of Financial Advice reforms paper. Click on the below link

http://ministers.treasury.gov.au/Ministers/ceba/Content/pressreleases/2010/attachments/036/Future_of_Financial_Advice_Information_Pack.pdf

Message from the Minister

The Government recognises the important role played by financial advisers1 in assisting people to
plan for their future. Longer term challenges such as the ageing of the population, as well as
recent events such as the global financial crisis, underscore the need for quality advice.
It gives me great pleasure to announce significant reforms to the provision of financial advice,
which I believe will improve the quality of advice, strengthen investor protection and underpin trust
and confidence in the financial planning industry. These reforms should ultimately encourage
more people to seek financial advice.
This package represents a comprehensive Government response to the recent Inquiry into
Financial Products and Services in Australia by the Parliamentary Joint Committee on
Corporations and Financial Services (the PJC Inquiry, see Attachment A), which was set up in the
wake of collapses such as Storm Financial and Opes Prime.
In this respect, the Government’s response is guided by two overriding principles:
• financial advice must be in the client’s best interests – distortions to remuneration, which
misalign the best interests of the client and the adviser, should be minimised; and
• in minimising these distortions, financial advice should not be put out of reach of those who
would benefit from it.
The Future of Financial Advice contains three key reforms, which will apply from 1 July 2012:
• A prospective ban on conflicted remuneration structures, including commissions and any
form of volume based payment. In addition, percentage-based fees (know as assets under
management fees) can only be charged on ungeared products or investment amounts.
• The introduction of a statutory fiduciary duty for financial advisers requiring them to act in the
best interests of their clients and to place the interests of their clients ahead of their own
when providing personal advice to retail clients.
• The introduction of adviser charging regime, which retains a range of flexible options for
which consumers can pay for advice and includes a requirement for retail clients to agree to
the fees and to annually renew (by opting in) to an adviser’s continued services.
The reforms also significantly expand the provision of low-cost simple advice (known as intra-fund
advice) to areas including transition to retirement and the nomination of beneficiaries. There will
be a review of whether other measures are needed to clarify whether simple advice can be
provided in a compliant matter outside intra-fund advice.
I welcome the significant efforts of industry, including the Investment and Financial Services
Association (IFSA) and the Financial Planning Association (FPA) to remove commissions. The
reforms clearly support their efforts by introducing enhanced standards that apply across the retail
financial services industry. The reforms will greatly reduce the incidence of investors being
recommended financial products as a result of sales incentives offered to advisers. Clearly, clients
should receive advice that is in their best interests.

Chris Bowen

Minister for Human Services, Minister for Financial Services, Superannuation and Corporate Law

1 The reference to the term ‘financial adviser’ in this Information Pack generally refers to those who provide ‘financial
product advice’ under the Corporations Act 2001.

Planning Practices Sales Up

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Consulting firm, Radar Results is seeing more sellers of financial practices come to market, particularly larger sized firms.  John Birt, Managing Director for Radar Results said “Currently our clients are looking at purchasing 10 planning practices which should sell for at least $5 million. We have found 5 of these practices since December 2009. ” Mr Birt goes on to say “Owners of Dealerships are also looking to exit the planning industry due to their profits being lower, often into the red. At the moment we have a number of dealerships wanting to talk to our clients about selling.”

The trend for using a consultant or buyer’s advocate commenced in 2005 with Radar Results pioneering the way. Since then a number of buyer advocates have sprung up, all doing very well. Mr Birt believes competition is healthy and often the advocacy firms refer to each other when it’s in the interest of helping a client.

On the flip side, using a broker to sell your business can be a very expensive and unrewarding exercise. Often their process can cause the sale to be delayed; sometimes well over a year expires with no result, not to mention the 5-10% commission you have to pay.

 A good buyer’s advocate will allow their client to meet a suitably matched seller and have the whole deal completed in 1 to 2 months. It’s a private consulting experience that’s offered by Radar to the financial planning industry, rather than a broker flogging a business to all and sundry. A dangerous aspect of this “sell to anyone” mentality is that the staff will find out that you’re selling – since its broadcast everywhere! You then have quality staff leaving to find a safer employer which can affect the sale price. Another downside is the time wasted being introduced to buyers that are not a cultural fit, or matched to your business model.

Radar feels that offering a business to hundreds and thousands of people doesn’t respect the seller or the seller’s clients. It can take you 20 years to build a good client base and many of them (the clients) become friends. Selling them at an auction is like “selling meat carcasses to a butcher”. It’s usually not what planners had in mind when they took that first step towards retirement.  

Radar Results is running a series of Workshops in May and June to address these issues. Workshops are being held in Melbourne and Sydney shortly. Contact Radar’s Operations Manager, Michele Conroy on michele@radarresults.com.au for an invitation.

 

 

 

Selling Multiples

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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 yourGlasses 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. 
JigsawSetting 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.

Deal breakers when selling your financial planning business

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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 partnersNegotiate 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 Negotiateretention 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.

New Registered Valuation Service

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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.
 
CalculatorRadar 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.Phone
 
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

1 in 4 Valuations Lead to a Sale

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sell/buyThe 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 nationalpatrick 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

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Is Now the Right Time to Sell?

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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.
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6,000 Planners to go

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Recent Newspaper and Finance Magazine articles suggest that banks have not changed their lending criteria. This is questionable when they are knocking back a lot more loans than previously. This year Radar Results will help around 40 clients with their finance applications to acquire a financial planning business. Matt Taylor, Radar’s Melbourne Manager, feels that bank lending practices have changed. “They [the banks] have dramatically changed to a point where they are snubbing property when offered as security. I can’t believe that an adviser putting up his home, his FP business plus the one he wants to buy, is still declined.” Institutions say that while there are enough assets, the cash flow’s not there. Right or wrong, this is a huge change in appetite from only 12 months ago and is certainly not helping the financial planning industry. The banks have a legal obligation to notify their lenders when they breach a covenant or loan condition. Radar is seeing more and more breach notices being issued with some practices having to be sold, or partly sold to repay a portion of their loan. To have your planning business valued just go to the Valuation Questionnaire Page.

Introducing our New Associate – Narelle Burke 

Narelle brings with her fifteen years of funds management, platform, practice management and financial planning experience.
 
Narelle’s previous roles have included four and a half years with HSBC Asset Management as their State Manager – Queensland, BusinessNarelle Development Manager roles with Great Southern Securities and Norwich Union (Now AVIVA) and administration roles within AMP in both their Head Office in Sydney and their regional office in Toowong in Brisbane.
 
Narelle’s most recent role has been working as the Business Development Manager in her husband’s financial planning office where they operate under their own dealers licence. As an authorised representative she has also been providing Financial Planning advice and ongoing education to clients of the practice.
 
Having worked closely with financial planners and accountants throughout Queensland for most of her working life, Narelle has had first hand experience assisting in the transition of businesses; before, after and during acquisition.
 
To contact Narelle Burke please call 07 3391 2490 – Mobile 0400 020 907 or email narelle@radarresults.com.au

 6,000 Planners to go ; down to 10,000?

There has always been debate on how many financial planners we actually have here in Australia. Some say it reached 25,000 during the 1980’s. When minimum educational requirements were introduced, it halved. Choice Magazine recently claimed we have 16,000 planners – but how many are actually practicing. Choice also claimed that the number of planners in Australia could fall to as low as 10,000 due to the poor economic times. If you are leaving the planning industry as an employee and would like to acquire a FP business or book of clients, please go to the Buying a Financial Planning Business Page.John