Planning values holding but may fall in medium term
Financial planning business values are stable but are still at risk of being pushed down by the impact of future of financial advice (FOFA) reforms.
In the current market, buyers for 'bargain basement' prices in financial planning acquisitions are misguided, according to financial planning business broker Centurion Market Makers (Centurion) managing director Chris Wrightson.
"Having been involved in the sale of practices for over a decade, I can say with complete confidence the reality is, unless a practice is financially stressed, has lost clients' money or the principal is under pressure to sell by virtue of poor health or personal circumstances, bargain buys are a pipedream," Mr Wrightson said.
"We think FOFA will not be a catalyst for a mass exodus of advisers from the industry, and therefore an excess supply of practices for sale, but it will drive business model change and stratify the value of client books," he said.
He explained there is an emerging view that the conflicted remuneration provisions in the FOFA reforms will negatively impact the value of practices, particularly with the proposal to ban trail commissions.
"It's important to note that many practices have moved their revenue reliance away from retail platform trails. New clients are on wholesale administration facilities, where they pay an agreed and explicit percentage or fixed dollar advice fee. This advice fee improves and shores-up a practices future income stream," Mr Wrightson said.
"As we expect most practitioners will sign up for an industry code of conduct, clients will not be asked to opt-in to the advice fee arrangement biannually. So there will be some ongoing certainty around the practice income stream," he said.
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