Addressing the recent ifa Business Strategy Day in Melbourne, Forte Asset Solutions founder and director Steve Prendeville said with recurring risk revenues likely to be eliminated completely following the 2021 ASIC review, even diversified financial advice businesses with a risk component were being significantly devalued when practices were brought to market.
“Historically risk was around 3.5 times recurring revenue but we’ve downgraded that – in our last sale we were lucky to get two times, although one particular business we were looking at was 2.5 times,” Mr Prendeville said.
“Given that we’ve got the ASIC review in 2021 and the Hayne report made a recommendation there should be zero commissions, the whole revenue stream is now at risk.”
Mr Prendeville said that while he was hopeful further changes to risk commissions may at least be grandfathered, the uncertainty created by the royal commission’s recommendations had depressed the market for business sales.
“We are seeing very few risk businesses come to market and where we are seeing the risk component, it is within diversified financial planning businesses – that is where we are getting the two or 2.5 times recurring revenue,” he said.
“I don’t believe any legislation, if ASIC was to make a recommendation, is likely to be retrospective, I think that revenue will still go through. But who knows when you’ve got the Treasurer saying all recommendations will be embraced totally?”
Mr Prendeville said despite the exodus of advisers from the industry over the past year, the environment for practice sales was surprisingly subdued, with many advice businesses looking to restructure over the next few years to get a better sale price rather than exit now.
“When people ask me about where the market is at they think I must have had my best year ever last year, but the reality is it was one of my worst actually,” he said.
“Businesses are not selling – the 2,500 advisers that left our industry last year were employed advisers rather than business owners, or if they were business owners they were suboptimal with revenues less than $100,000 that they were treating like an annuity stream, and it got too tough and they walked.
“Our market is very similar to the property market at the moment – if you don’t have to sell, you don’t.”
Interesting there is one [b]extremely dubious firm in Woree QLD that is rumoured to be selling their book to an ex-Suncorp planner[/b][b][/b], makes me wonder how much due diligence has been done as several ex-employees with firsthand knowledge know the lack of servicing and even basic communication over the years to that ‘book’ of clients.
With grandfathered commissions coming to an end, why would anyone even look at paying hard earned money for something that will fall away like rotten fruit?
Surprised he is still talking recurring multiples as the industry is quickly moving to more traditional business valuations of EBITDA. Banks no longer lend on recurring multiples, its an loan based on a multiple of the businesses EBIT.
Quote In addition to recommending the abolition of grandfathered commissions on all financial products, Commissioner Hayne said commissions on life insurance – which are now exempt from the ban on conflicted remuneration – should be dialled down and eventually phased out following the 2022 review.
“Unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero,” the Commissioner said.
Nobody, absolutely nobody, knows what will happen to risk commissions, renewals or otherwise until the LIF review is complete in 2021/22. All indications so far point towards a probable status quo being maintained. The life companies all pay the same now so those particular conflicts are gone. ASIC said recently that risk commissions were more than likely safe so this flys oin the face of reason he’d be scaring people with this. I’ve no idea why Prenderville is scare-mongering like this – self interest perhaps? He is a business broker but the mind boggles that he’s spouting this fake news and fear. He should be ashamed of his clearly self-serving behaviour in this instance. As if we don’t have enough to worry us.
Keep dreaming. Denial is not an attribute any business that wishes to remain in business can afford. You sound like you aren’t worried enough tbh, especially if you haven’t already started working on changing revenue models.
Scaremongering? Ostrich & sand hold any visual imagery for you?
Mate you are the one being unrealistic, not him
GF commissions didn’t effect all advisers, as they transitioned away from them over time. Risk commissions though, probably effects more than 90% of advisers (probably more), so if the government turned this off it would be curtains for a lot of advisers, and probably insurers too as they can’t get any distribution.
I think a legal challenge would be much more likely too as this would effect most advisers.
Then if the government want to ban all risk commissions, who is next? Mortgage Brokers, General Insurance brokers?
When you’re talking $60,000 to $80,000 per adviser to be licensed you’re damn right that’s lights out for most advisers…
“I don’t believe any legislation, if ASIC was to make a recommendation, is likely to be retrospective, I think that revenue will still go through.”
What rock have you been living under.
Just like they allowed GF commission to continue and not make it retrospective right?
The government has killed Advice in this country.
And its the clients that are going to be worse off.
Well if a government want a challenge to property rights, I dare say they will get if they decide to stop all commission payments. If Risk comms go the whole industry – Financial Planners and Insurers will likely go down the drain too.
This is a disgrace – I cannot recall an attack on an industry like this.
Crazy to pay anymore that 1-1.5 times revenue at this stage.
Crazy to pay anyone anything at this point in time. Do the maths, especially with the future risk of revenue stream, you may end up with a debt that is only half paid off at best and no income from that source to pay out the remainder let alone pay for the work that needs to be done to remain compliant and viable.
If you are buying a risk book at this point in time, you are betting red or black at the casino, good luck with that business plan!!
I think it is irresponsible in fact mischievous for Mr Penderville to make statements like”with recurring risk revenue likely to be eliminated completely following the 2021 ASIC review”. This is not factual it is a personal opinion and nothing more , peoples livelihoods are at stake here and they word people use should be very carefully chosen.
So you’d rather something like this blindside you, because any comment that doesn’t agree with your myopic view shouldn’t be aired?
Rather than be a grown up and at least listen to someone who is game enough to air his own thoughts that may lead others to be cautious and consider their future actions, business purchases, or own income models and make adjustments, you’d rather lambaste him simply because you don’t like what he’s saying? Seems to me you are either in denial or else hoping to flog off your business sometime before the education requirements come in. If anything, that is a closer definition to ‘irresponsible’ than someone issuing a cautionary article. Let’s check back in after the 2021 ASIC Review and see who was the more correct and responsible, shall we?
I suspect you’re the same ogre responding to most commenters. Firstly, prenderville has not offered an opinion but made a statement of fact that is in fact a lie. Secondly, who the hell cares for the opinion of a business broker on a matter such as this?
You comments and Prenderville’s go against the known facts on this issue. The facts don’t care if you don’t agree with them – they just are.
Ya gotta love the party that loves small business !!
Ha, I vaguely remembered something else in our industry being grandfathered…until it wasn’t!
What does this guber know? Please find where any recommendation was made with respect to risk commissions? They were explicitly excluded. Quit peddling self serving fear.
Stop commenting. Stop calling people guber’s. Im glad that you wont be able to pass the exam requirements anyway.
https://www.afr.com/companies/financial-services/banking-royal-commission-insurance-commissions-in-firing-line-20190203-h1at2m
Risk commissions will go. The insurers/industry funds/choice/lawyers want them gone. We only have muppets like the AFA and FPA to support us and they are too busy buying new Ferraris with the money given to them by the banks to care.
that’s all well and good, however what about poor old Joe Public, has anyone sat down and explained how it all works and what he (or she) wants from the review? i suspect not, I suspect that flashy headlines and motherhood statements will hoodwink the masses and they will be left wondering what happened, and as previously mentioned a significant number of practices will fold overnight .
Lol. You have shared an article without reading or understanding the contents. I asked the question because i read the report from front to back and there is absolutely no recommendation to reduce commissions to nil.
The article and the Hayne report very, very clearly state that this will be left to ASIC’s review. ASIC have given no indication that they intend to abolish commissions. Insurers by and large have also expressly made a case for the status quo regrading commissions. Insurers have been lobbying significantly for this very purpose. “Unless there is a clear justification for retaining those commssions” – you must have missed a very important part of the sentence. Since LIF, new business premiums have plummeted and adviser numbers have dropped. The underinsurance problem is worsening. What clearer reason do you need, chief?
Prenderville very clearly said that Hayne made a recommendation that commissions be reduced to nil, this is verifiably false and stating otherwise is nothing more than pushing a self serving agenda. It is literally there in black and white.
For what it’s worth, i am home and hosed with respect to the education requirements.
You sound like an old risky that would rather roll over than fight.