According to Radar Results principal John Birt, traditionally the difference in the multiple paid for a high-quality advice practice and a more conventional advice practice was about 0.5 times the recurring revenue (RR).
Nowadays, conventional practices are now selling for between 1.5 times and 2 times the RR and the grandfathered clients are selling for between 0.5 times and 1 times.
“Therefore, the difference today between the valuation of a high-quality financial planning practice compared to a conventional one is possibly up to 1.5 times the RR, before 2018 it would have been 0.5 times the recurring revenue,” Mr Birt said.
“High quality practice valuations haven’t really changed and there’s a higher demand now than at any time before.”
A quality advice practice, according to Radar Results, would have all clients having an annual fee level of between $3,000 to $8,000, each adviser would manage approximately 100 clients located in a capital city. The clients would all be fee-for-service with no grandfathered trail commission clients.
On the other hand, a conventional advice practice would have many clients compared with the number of advisers, possibly one adviser and 1,000 clients with 300 clients considered active, with the clients geographically spread across a large area.
In addition, the practice may also have a good percentage of grandfathered clients, possibly up to 20 per cent of the client base with many of the grandfathered clients probably not engaged and cannot be contacted.
According to Mr Birt, finance is now harder to obtain, with the Hayne royal commission forcing multiples down for conventional practices and many more practices for sale.
The higher educational requirements are forcing planners to retire earlier and, consequently, sell their practice, he said.
“Buyers now have a larger selection of sellers from which to choose and, therefore, can negotiate lower price multiples and obtain better payment terms. Since the release on 4 February of the royal commission report, Radar Results has been contacted by many more sellers, up to 15 per month,” Mr Birt said.
“Previously, Radar Results would have around five sellers per month make contact. We have had two more consultants join Radar Results due to this higher demand.”
There will be no valuation gap in a year or two as ALL practices will be worth squat sh1t
A ‘conventional’ practice could have 1 adviser with 1000 clients, 300 of these clients considered active.
So a conventional practice has 70% of clients fee for no service or ‘inactive’?
And we wondering why the industry is getting spanked by regulation.
So the smart ones have sold out . The existing planners will now pay $ 550 for the new FAsea exam and $5,500 pa ( yes thats every year). extra for the new annual external check police . ( external to the dealer group audits ) .Cost of PI to increase dramatically and Billy Shorty to install all planning under intra fund advice . Feeling squeezed ??