Radar Results chief executive John Birt said the current supply of insurance client books in particular was “way down” on normal levels, indicating many risk advisers were waiting until the last minute to sell off their business and the number of books for sale would increase “alarmingly” over the next nine months.
“We usually have up to 150 life insurance books, financial planning businesses and accounting practices for sale, but with a record number of sales over the past year, stocks are way down,” Mr Birt said.
“Many financial planners will bypass the FASEA exam and either retire or move into another industry. For the time being, they are holding onto their books for the income.”
Mr Birt said while this was an understandable strategy, advisers could likely achieve a better sale price by putting their client books on the market now rather than waiting until the end of 2021, when they would be competing with a flood of other retiring planners.
He added that for life insurance books, which were most in demand at the moment due to supply shortages, a mix of client age, occupation and product type would determine the multiples paid.
“Which multiple applies to your risk insurance book depends on many factors, but the clients’ age in relation to their policy and the premium cost is the key factor”, Mr Birt said.
“Clients under 55 years of age can attract up to 2.7 times [recurring revenue], but other factors need to be present to achieve this multiple. The payment terms offered to a buyer when selling, the location of the clients, the products recommended, the occupation of the clients and the size of the premiums are all additional factors that need to be considered.
“Risk insurance clients with professional occupations, working in the city and paying premiums of $5,000 to $10,000 per annum would command the highest multiple.”
Despite challenges in the risk market over the past few years, Mr Birt said life insurance client books were still highly sought-after as they were less vulnerable to market declines and not as time-consuming from a compliance perspective.
“Any stock market falls do not impact a risk insurance book at all. No fee disclosure statements opt-in agreements need to be sought, and no SOAs are required with the on-boarding of the risk insurance clients from one licensee to another,” he said.
“It makes the purchase and transitioning of the risk insurance clients simpler and easier than buying investment-based funds under management-styled businesses – which are [also] in short supply.”
A lot of people have been asking for 2.5-3x upfront saying this is a healthy book. The only person who would pay that much would be someone who will review and rewrite the whole book or as much as possible to recoup the costs.
[quote=Life Renewals Are King]No gamble whatsoever a life book. Would be the best asset to purchase going forward. LIF is speaking strongly to all involved and has placed life books in a safe place. The current industry analysis showing life commissions to be indispensable will keep life books as a source of gold for those fortunate enough to be holding them and an outstanding opportunity for those looking to buy.[/quote][quote=Life Renewals Are King]No gamble whatsoever a life book. Would be the best asset to purchase going forward. LIF is speaking strongly to all involved and has placed life books in a safe place. The current industry analysis showing life commissions to be indispensable will keep life books as a source of gold for those fortunate enough to be holding them and an outstanding opportunity for those looking to buy.[/quote]
Umm – No.
No “umms” about it. A most definite yes. Upon what do you base your careful and ‘detailed’ assessment?
On the complete ridiculousness of the statement? What does “LIF is speaking strongly to all involved” even mean? “The current industry analysis” – somebody’s opinion only.
I wouldn’t be paying more than 1-1.5x for an insurance book.
Providers are ramping up level premiums, admin teams are slow, underwriting is getting tougher, clients are cancelling policies and younger people are increasingly willing to self-insure due to bank of mum and dad or home equity.
Ongoing revenue at 10% on most old ‘upfront’ commission policies barely covers the cost of making changes in many instances and there’s risk of look backs similar to the fee for no service stuff where people have been over-insured or had their super eroded ‘too much’ or haven’t been adequately covered. The work involved in such projects (even if not direct cost for compensation) would be huge. Not to mention the risk of commissions going, and inevitably at some point. I wouldn’t be buying a risk book at all, and if I did, would wanna be a good one, and still I’d only pay 1x, maybe 1.5x in exceptional cases.
If you’ve ever got a life book for sale just let me know Timmy. I’d grab it with both hands in an instant for only 1.5x renewals . . . yes please!
You’re clutching at straws with points like “commissions going” (unsubstantiated and non-factual), “10% won’t cover you” no, but there’s perhaps 200 clients ALL paying 10% to “cover” you doing the work. Buying a client base is the very best investment one could make in a lifetime – even now and especially now that fee income os so hard to generate for planners and IMPOSSIBLE to generate for pure risk writers. The value of a good client base purchase has been self-evident for 4 or 5 decades or more and as an asset purchase for a risk writer is beyond reproach.
Vendor speaking …
No gamble whatsoever a life book. Would be the best asset to purchase going forward. LIF is speaking strongly to all involved and has placed life books in a safe place. The current industry analysis showing life commissions to be indispensable will keep life books as a source of gold for those fortunate enough to be holding them and an outstanding opportunity for those looking to buy.
Except they have been banned by FASEA. They fail the disinterested persons test in the Code of Ethics explanatory document. It’s just a matter of time before a huge class action or lookback program bankrupts us. I’m saying this as a vulnerable adviser in small business who relies on renewal commissions to pay the bills. I am desperately hoping Treasury fixes Standard 3 when they take over from FASEA. I don’t understand why this important issue is being ignored. We need to shine a spotlight on the issue, or else it could be swept under the carpet and then eventually the money hungry lawyers discover it and come for us. Until this is resolved, you would have to be an idiot to by a life book.
All remuneration has effectively been banned by FASEA. Fee for service advice paid directly from the client’s bank account fails FASEA Standard 3. All forms of remuneration are conflicted, and according to Standard 3 all conflicts must be avoided.
Even self righteous scolders like Daniel Brammall and Robert MC Brown would routinely be breaching FASEA Standard 3.
Standard 3 needs to be fixed RIGHT NOW. We shouldn’t need to wait and hope for Treasury to fix FASEA’s mistakes. FASEA staff are still getting paid until July. They should start earning that pay by fixing their mistakes before they go.
@Life Renewals Are King
Some of us get your sarcasm ?
No sarcasm whatsoever. A life book is gold as they are guaranteed income unaffected by the malaise advisers find themselves in with the compliance around conflicted fees of all sorts. In a time when industry conditions are causing reduced income /fees for advisers the guaranteed income stream from a quality lkife book is a precious gem. it is nonsense what people are saying about renewal commissions going away, clearly will not happen with the majority of govt and overseas opinion decisively demonstrating that fees simply do not work for risk only business (we don’t have to labour this particular point ANY more – ot is FACT) and that renewals will stay. With respect, if you think renewals are going away you need to brush up on the research and what those in the decision making positions are saying. They are basing it on the overseas experience which was a disaster and proves everything said about clients NOT paying fees for pure risk advice (NOT talking special HNW clients i.e. the 1%.)
Life insurance books currently are a gamble.
The ASIC review could kill commissions at any time. FASEAs farcical interpretation (as understood by many compliance departments) that you need permission to get the commission from every client, the shadow “minister for industry funds” (sorry, “financial services”), Stephen Jones’ great idea to kill all competition of industry funds in the form of advisers by disallowing insurance commissions, and the complete silence of the insurance companies on all these matters, which means we can’t rely on them as allies at all, all of these items are making risk book purchases a risky gamble.