Risk insurance clients worth more
The demand has exceeded supply, with many buyers asking Radar Results about risk insurance client registers and businesses. Australia’s largest buyer agent for financial services, Radar Results, is looking for any financial planner or life insurance agent looking to sell; and looking at doing so right now.
The price multiple on risk insurance clients is traditionally 2.2 times annualised renewable commission and as high as 2.7 times depending on the average client age of each client. The age range that is most favoured is between 35-55 years old, and the size of the business’s annual recurring revenue is $500K-$750K. The younger the risk clients, the higher the multiple paid by our clients (the buyers).
This represents a purchase price between $1.35 million to $1.5 million based on the current price multiples of three times and on the annual recurring revenue of $500,000.
Some of Radar Results’ buyers are now asking for much higher levels of annual fees, as much as $3M per year. These risk books are harder to get but not impossible, as smaller companies are merging with larger ones. Price multiples on risk-insurance books are expected to increase from here, insulated from stock market falls.
Accounting practices for sale are becoming rare
Radar Results sees price multiples rising for accounting practices in the next several years. It is simply a matter of supply and demand, with fewer sellers on the market. The traditional size business sought-after by accounting firms has fees of $1-$2 million per year.
Recently, clients at Radar Results have been asking for larger accounting practices, as big as $5M. Based on the standardised Earnings Before Interest and Taxes (EBIT), a sales price of that size of accounting practice will range from $8M to $10M, using an EBIT of $2M. These size accounting practices are typically located in major cities and a few larger regional areas.
Accounting fees can include self-managed superannuation fund (SMSF) admin fees. These annual administration fees may be between $3,000 to $4,000 per SMSF account, including the auditing and tax returns. The selling price for these administration fees would be more than double the standard accounting fees. I can see that buying SMSF administration fees will cost more because the revenue is stable and they are very hard to find.
July 2022
Buying financial planning businesses or accounting practices in regional areas is becoming a significant issue with many of our buyers. We have about 200 active buyers in Australia, many wanting sellers in the capital cities. They used to look at regional areas for acquisitions, but since the pandemic, it’s almost impossible to employ staff to replace the business owner.
Sellers in the country and regional areas generally want to collect the sale proceeds over a year, then move into retirement or some other career.
Qualified accountants and financial planners are impossible to find outside capital cities. Radar Results buyers are no longer prepared to risk not having support staff to run these businesses once the owner moves on.
Below in this newsletter are several positions our buyers want to fill, and with the lack of demand for regional practices, prices have fallen.
Radar Results has published a Price Guide for 15 years, and from July 2022, we will publish two Price Guides. One based on the age of the financial planning clients that are sold, and a new version based on the size of the client’s fee paid for the review service.
In capital cities and regional areas, the demand has lifted for clients who pay higher fees. The minimum fee payable to a financial planner is expected to be $4,000 to $6,000 per year. Similarly, accounting clients that pay higher fees are more valuable and sought after if they are small to medium-sized businesses.
The challenge is to find qualified accountants in these regional and country areas to take over from the owner.
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.
