Risk-focused advisers hoping to sell their practice and exit the industry before the FASEA deadlines are being advised to lower their expectations, with one industry valuation expert indicating high quality risk businesses are selling for well below historical values.
Addressing the recent ifa Business Strategy Day in Melbourne, Forte Asset Solutions founder and director Steve Prendeville said with recurring risk revenues likely to be eliminated completely following the 2021 ASIC review, even diversified financial advice businesses with a risk component were being significantly devalued when practices were brought to market.
“Historically risk was around 3.5 times recurring revenue but we’ve downgraded that – in our last sale we were lucky to get two times, although one particular business we were looking at was 2.5 times,” Mr Prendeville said.
“Given that we’ve got the ASIC review in 2021 and the Hayne report made a recommendation there should be zero commissions, the whole revenue stream is now at risk.”
Mr Prendeville said that while he was hopeful further changes to risk commissions may at least be grandfathered, the uncertainty created by the royal commission’s recommendations had depressed the market for business sales.
“We are seeing very few risk businesses come to market and where we are seeing the risk component, it is within diversified financial planning businesses – that is where we are getting the two or 2.5 times recurring revenue,” he said.
“I don’t believe any legislation, if ASIC was to make a recommendation, is likely to be retrospective, I think that revenue will still go through. But who knows when you’ve got the Treasurer saying all recommendations will be embraced totally?”
Mr Prendeville said despite the exodus of advisers from the industry over the past year, the environment for practice sales was surprisingly subdued, with many advice businesses looking to restructure over the next few years to get a better sale price rather than exit now.
“When people ask me about where the market is at they think I must have had my best year ever last year, but the reality is it was one of my worst actually,” he said.
“Businesses are not selling – the 2,500 advisers that left our industry last year were employed advisers rather than business owners, or if they were business owners they were suboptimal with revenues less than $100,000 that they were treating like an annuity stream, and it got too tough and they walked.
“Our market is very similar to the property market at the moment – if you don't have to sell, you don’t.”
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