Financial advice practice valuations have returned to their long-term average of three times recurring revenue, says Forte Asset Solutions director Steve Prendeville.
The financial services business broker said recurring revenue multiples had been around 2.5 to 2.75 in 2013, with an internalised focus on the delivery of annual fee disclosures and other FOFA compliance requirements leading to limited buyer demand. Forte said buyer demand has returned since December 2013, however, with the government announcing it would “quickly address the legislative uncertainty that had been created”.
“This confidence was not shared by sellers and few ventured to market, given grandfathering concerns and risk associated with revenue maintenance, which was potentially at risk by annual fee disclosure,” said Mr Prendeville's annual market commentary. “The immediate scarcity factor created was further exacerbated by the institutional hold of the majority of practices and their imperative to not allow businesses to come to market but satisfy seller and buyers' requirements internally.”Mr Prendeville said it has, however, seen a trickle of financial advice firms re-enter the market to sell in August. “It may turn to a flood as sellers emerge from retention bonuses, grandfathering uncertainty and client retention concerns and look to capture scarcity premium pricing,” he said.
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