Recurring Revenue Multiples Update


It’s been an interesting period since Xmas with the value of financial planning (FP) firms still trending down. Any further downturn in the markets could see their values fall further. With more and more planners looking at retiring, there may be an oversupply of planning firms for sale in the next few years.

The recession has seen finance approvals for FP acquisitions difficult to secure. Although, the situation has improved recently with lower interest rates on these particular loans.

FinanceUnemployment in Australia has been increasing by half a percent (0.5%) per month and may reach 10%. Just today, the government acknowledged that double digit unemployment is likely. This is a concern for all – especially the FP industry with increased redundancies and lack of income from new business. With investor confidence at an all time low, I wonder when advisers will move back into the market? The Dow Jones is up 23% from 9 March 2009, which was only 6 weeks ago! 

With demand for financial planning firms at an all time high, Radar Results has opened another Melbourne Office. Queensland is also very busy for us with many advisers looking to expand their current FP businesses – so a Brisbane office is likely for June 2009. Also in this Newsletter we discuss recent recurring revenue multiples, how they’ve changed and how they can be applied to value your business. We compare RR multiples between regional vs city practices, platform vs retail business plus risk business vs investment business. Please call me if you have any questions or go to Radar Results Website. Obviously every business is different, so if you would like Radar Results to value your business (fee free) just fill out our online Valuation Questionnaire. Takes only 4 minutes. Please read on ….


Financial planning businesses in Australia have frequently been valued on a multiple of recurring revenue (RR), particularly when they’re offered for sale. It’s important that the buyer and seller both agree on the exact definition of RR otherwise the expected purchase price can be quite different. So agreement early needs to be reached on definition of RR to avoid conflict.Radar

Historical sale’s figures of FP businesses when compared to present day market values can be very misleading. As well, the RR multiple used for valuing a capital city client base when compared with a country/regional client base can be “miles apart”. To further complicate matters, the different RR multiples used for platform FUM revenue compared to non-platform FUM revenue can be 50% higher. The value of revenue from risk clients can also be valued differently between city and regional locations. Risk RR today can sell at a higher value than investment revenue due to demand and it’s lower volatility. In many situations, RR has increased over the past year for risk business whereas FUM revenues have declined and been volatile.

Businesses that are large enough to provide comprehensive financials can also be valued on Earnings Before Interest and Tax (EBIT) although definition of “large” can vary between a $1M business and a $10M one. Depending on the quality of the business, an EBIT of between 4 and 7 can apply.

In summary, you could apply the following multiples of recurring revenue (RR) to a business:

Regional Platform FUM RR               2.7x       
Regional Non Platform RR                2.0x
Regional Risk RR                              3.0x
CBD Platform FUM RR                       3.3x
CBD Non Platform FUM RR               2.7x
CBD Risk RR                                     3.5x –  4.0 *
 * Depending on age of clients, types of policies, insurance companies etc.

If you apply the above RR multiples to the different parts of a business based on location, platform and risk revenue – a fair valuation can be determined. C and D grade clients are in large demand and can usually fetch between 1.5x – 2.5x RR. The variation in RR depends on the seller’s ability to provide any client files (hard or soft), what is actually contained in these files, client service records, the seller’s compliance reports, payment terms, number of clients, age of clients and their location.


Introducing our New Associate – Merv Wilson

Merv has been working for over 36 years in Banking and Financial Planning and now looks after of 2nd Melbourne Office.  He spent the first 15 years in retail banking with National Australia Bank, including 9 years as a branch manager before assisting with the establishment of the bank’s financial planning arm in 1987. 

In 1994 Merv crossed to Pembroke Financial Planners, which subsequently became Godfrey Pembroke in 1995 before joining Capstone Financial MervPlanning in 2005. Merv joined Radar Results in 2008, having scaled back his involvement with Capstone.

Merv is a CFP, holds a Diploma of Financial Planning and a Bachelor of Science degree from Melbourne University.  He is a strong advocate of the “Fee for Service” approach to Financial Planning, as pioneered by Pembroke in the 1980’s.

Merv has seen both sides of buying and selling Financial Planning Businesses, having purchased the business of another Godfrey Pembroke Consultant in 2002 and is now well advanced in the succession of his Capstone business.  He believes that the single most important ingredient in a successful transition is to identify like minded sellers with buyers. Contact Merv if you would like to sell your financial planning business. Radar Results has a policy of not charging the seller.
Merv can be contacted on 0402 852 070 or