|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%)
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.
RADAR RESULTS – SPONSOR FOR 2013 SYDNEY FPA CONFERENCE
Radar Results, M&A consultants to the financial planning industry, recommend you visit their stand at this year’s annual FPA Conference to be held in Sydney. From 17 October to 18 October you can have access to Radar’s expert consultants in the area of practice valuations, advice on buying a financial planning business or if you wish to sell, what to do. Not only can the Radar consultants provide advice on financial planning businesses, but also on accounting practices, mortgage businesses, SMSF client registers and risk books.
FOFA CAUSING HAVOC
FOFA was introduced to give more Australians better advice at a lower cost. Some aspects of FOFA are doing the opposite; stopping planners from moving some clients from a commission system to a fee arrangement, basically to save the planner from more ‘paperwork’ and responsibility.
An annual Fee Disclosure Statement (FDS) now needs to be sent out to all clients who pay the planner a fee. The FDS must state what services were provided over the past year and at what fee level, plus what services will be provided next year and at what fee level.
A long serving planner recently suggested that a fee of $1,700 ‘sounds about right’ as a fee for an annual review. When quizzed on how he arrived at that amount, he said “Well, they have about $300,000 in FUM; what do you think John”. I replied “I think it should be based on what value you have delivered, and plan to deliver in the next 12 months.” I asked what the planner did for the client now “nothing, unless they call me and ask for a review” answered the planner. This is not an uncommon occurrence.
It would be good if planners could measure what it costs to look after that client for the year, and then going forward, determine a fee based on costs. I know it sounds difficult and complex, but for most of the 90’s that’s exactly what went on with accounting firms I worked with.
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Radar Results is the industry leader to sell, buy or merge your financial planning, accounting practice, insurance business or mortgage broking business.
PO Box 311
Avoca Beach NSW 2251
Mobile: 0413 838 362
Licence No: 20054274