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Grandfathering fails to hit valuations

FOFA has had an impact on financial planning practice sales activity but has not adversely affected practice values, according to business broker Radar Results.

In a statement issued yesterday, Radar Results director John Birt, a specialist in financial planning industry M&A, said business sales have stalled since implementation of the new regulatory regime in July.

A Radar Results snapshot of practice valuations as at 31 October 2013 showed that investment books comprised of clients aged between 35 and 64 have held up at between 2.7 and 3 times recurring revenue.

Investment clients aged 65 or older are sitting at 2.3 to 2.7 times recurring revenue, while risk clients are continuing to be the most lucrative assets at 3 to 3.8 times, according to Radar Results.

Lower value 'C and D' clients are worth between 1.5 and 2.5 times recurring revenue, while general insurance clients are placed between 1.5 times and 2 times.

Corporate superannuation clients saw the biggest fall in value over the six months to 31 October as MySuper threatens to eclipse the sector (down from 0.8-1.3 to 0.5-1 times); and mortgage clients rose in value from 1.2-1.7 to 1.5-1.9 times as planners look to cross sell, said Mr Birt.

Accounting fees have also risen off the back of demand for cross selling opportunities, said Mr Birt.

Concerns about grandfathering have not lowered practice valuations, he said – and if anything, valuations in Western Australia, Victoria and New South Wales have seen slight increases.

“EBIT [earnings before interest and tax] multiples have remained steady since FOFA was introduced and can vary from four times to 6.5 times, depending on the practice. More commonly, an EBIT range is between 4.5 times and six times,” said Mr Birt.