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Client segmentation biggest factor in upping practice value

Having an effectively segmented client base is the number one factor in improving the value of a financial planning practice, according to practice broker Steve Prendeville of Forte Asset Solutions.

“There a number of things you can do to prepare [a practice for sale] but number one is client segmentation,” Prendeville said.

“The more info you have on clients, the more confidence a buyer will have in what they’re buying.”

It is important to know significant client details such as how they are invested, their age and remuneration ranges, and types of employment.

Prendeville says that in the case of one planning business he valued, the principal was able to add $300,000 to the valuation simply by implementing client segmentation “because they had that information at their fingertips”.

Some principals don’t know where their funds under management (FUM) are, and that’s what a buyer will look at from a risk assessment point of view and an opportunity point of view, according to Prendeville.

“The vast majority of financial planning businesses are operating 20 to 30 per cent of total FUM in cash and buyers are seeing this as a future revenue opportunity when confidence returns and the normal asset weighting of 10 per cent is appropriate,” he said.


“The underlying lesson is you must know intimately all facets of your business, and the ability to showcase that in a timely fashion and particularly when creating an information memorandum when you bring all information available into one spot.”