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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

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.

Highest Prices Ever

RECESSION 2017-18

According to then Prime Minister Paul Keating, the last recession we had was ‘the one that we had to have’. During this recession, interest rates rose to 18%, loan delinquency rates hit 12% and unemployment levels hit nearly 11%.

Expectations are that we are in for another bumpy ride next year. While I’m not sure if the recession of the 90’s will be repeated, property prices are tipped to suffer.

With respect to investing, overseas fund managers have Australia on a ‘no-go list’, meaning home and apartment prices are the highest in the world when compared to our incomes. Bar New

South Wales, every state has an over-supply of dwellings, with an additional 200,000 dwellings to be completed over the coming year, and 217,000 the year after. This oversupply and failed settlements could lead to apartment prices falling by 20%. Developers need to sell the unsold stock to meet their debt obligations.

Many financial planning practices have been advising their clients to buy property, particularly within their Self-Managed Super Fund. What effect would property prices moving down 20% have on the client’s overall financial situation, and would the client have a case against the planner’s AFSL or licensee? How will a recession impact financial planners, the financial industry and more importantly their clients? Being heavily geared into just one asset class, rising interest rates, higher unemployment and lower property prices are a deadly mix. 

HIGHEST PRICES EVER

Today, prices being offered for these businesses or client registers are the highest they have been in eight years. This is primarily due to the low interest borrowing rates and finance being plentiful. AMP has just changed their Buyer of Last Resort (BOLR) formula, now placing non-AMP products in the same category for valuation as AMP products. I believe this applies to the Charter and Hillross practices as well.

AMP Bank is offering their financial planners loans to expand, some at interest rates of 7% fixed, principal and interest over 10 years, and preferably they’re being encouraged to buy non-AMP practices or client registers, and move them into the AMP practice. Once again, this includes Hillross and Charter. This high demand by AMP linked advisers is forcing up the prices paid for financial planning activities.

BABYSITTING

Another factor that has forced up prices being paid for financial planning practices is the internal need by licensees to retain their own advisers, otherwise known as ‘baby-sitting’. Some medium-to-large licensees have offered to buy the practice themselves, as a temporary hold until they can find another adviser to join their group, and then on-sell it. The existing clients and associated revenue is retained.

LOAN BOOK TRAIL PRICES RISE FURTHER

In the past three years, loan book prices have nearly doubled, with some now selling for between two and three times the trail. Some mortgage brokers have sold their trail books for over three times the trail, however, in these situations there’s a correlation between the aggregator and the loan broker, with the most sought after loan books being aligned to aggregators in PLAN, FAST, Connective, AFG and Choice. Cross-selling opportunities is the main reason for this price rise, along with low supply. So far this year, clients of Radar Results have purchased fewer than 10 trail books, but if I had 100 trail books, our clients would’ve purchased them all. Financial planners really want to buy loan books as well, and tend to outbid the mortgage brokers.[layerslider id=”1″]

ACCOUNTING PRACTICES UNDER PRESSURE

Accounting practices haven’t seen the same demand for their practices as financial planners and loan brokers have seen for their businesses. Many accounting practitioners, whether a sole practitioner or partnership, seem to have higher levels of business costs, such as salaries, and cannot pass the full effect onto their clients. These days, taxation clients are more demanding, more selective with the services they require and more critical of the value for money concept.

Accountants need to do more than just lodge tax returns. Many are under- charging, which I feel is a confidence issue. Accountants that provide advice, administration and compliance work to their SMSF clients are either over-charging by an exorbitant amount or in many situations not charging enough. The gap is enormous, with $895 per annum to do the full year’s work for a SMSF, and $8,000 per annum to do basically the same work.

Prices paid for individual tax return clients, commonly called ‘I returns’, have fallen. The main steadier for accounting practice prices is the demand by financial planners looking to reach a large number of prospects to sell loan/s, planning services, SMSF set-up and advice, along with risk insurance products.

FOFA Causes Havoc

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 Older man stressedright’ 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.