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Advice practices to ‘trade at premium’

Financial planning practices will continue to attract a premium sale price relative to other professional services firms, consultancy Centurion Market Makers has predicted.

In a market commentary on practice sales in the financial advice market, Centurion said there are a number of distinguishing features that make these businesses more attractive than other comparably-sized enterprises.

In particular, the report points to monthly recurring revenue with “little seasonality” along with low bad debts, low levels of working capital, zero or little inventory and stock, and low “plant and equipment costs”.

“Unlike many other small businesses, including other professional services firms, financial planning practices tend to exhibit some key differences in regards to financial performance,” the report said.

“It could be expected that Financial Planning [businesses] will continue to trade at a premium to many other small businesses and other professional service firms.”

The report also explains that there is “considerable demand” for superannuation- and risk-only client books, but that there is also a “very limited supply” and few transactions involving these businesses as most are “managed within the existing AFSL provider network”.

Meanwhile there have been few corporate super specialist practice transactions “other than [buyer of last resort] sales back to the AFSL”, the report states.