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.

Radar Results has helped many financial planning practices to sell their businesses over the past 12 years. Susannah Hart has been invited to join our team to further service the Sydney and ACT market.

Susannah had been in the financial services’ industry for over 25 years with her second career starting in an Accountant’s office, then transitioning the Accountants into Financial Planning.  A RetireInvest Franchise owner and Authorised Representative, she later moved into the corporate arena as a BDM, then as State Manager with Centrepoint Alliance (previously PIS), Business Growth Manager for the MLC Dealer Groups (Garvan, Godfrey Pembroke, Apogee, Meriton, NAB FP) and more recently, Count Financial Group’s National Development Manager.

Radar Results owner and Principal, John Birt, believes that Susannah’s experience and connections will assist buyers and sellers along their respective journeys.

John Birt, Principal of Radar Results, believes that the next two years will be very active, with many financial planners considering the sale of their business in the short term. According to Birt, “Advisers are definitely looking to sell before the new educational requirements force them out of the industry, and the abolishment of grandfathered commissions is likely to speed this up.”