In its latest market commentary, the company cautioned that the average premium valuations for practices over the last five years will likely decrease as more advisers look to exit the industry.
“There are a number of well documented headwinds facing the financial services industry in the coming years,” the company said.
“As with all change and disruption these bring both opportunities and challenges based on your individual perspective, circumstances and willingness to adapt and seize opportunities as they present themselves.”
Chase Corporate Advisory identified four challenges facing advisers and putting pressure on the industry; the increased education standards to be implemented by FASEA, the recommendations to be made by the royal commission, potential changes to small business tax concessions, and ongoing strength in US equities.
“Going forward we are of the opinion that there will be a greater polarisation in both the quality of financial planning firms and the valuation multiples those firms ultimately attract,” the company said.
“All this points to what we believe will be a significant number of planning practices available for sale in the ensuing years. Interestingly a large number of advisers have stipulated that 1 January 2024 will be their retirement date.”
The company expects that the existing seller’s market could be turned around into a buyer’s market “if all this comes to fruition”.
I’m an employed adviser, who wants to stay. My employer is leaving the industry. He has only been in the industry for 4 years. It is proving difficult to actually find a new practice that will take on a planner. I can’t work for $65k pa fixed as ‘phone based fee for service’ and support my family in Sydney. So do I leave too? I would love any feedback on this from other planners. New advisers are also feeling the RC impact.
Yes. I mean it is damn obvious for all to see. Increased regulation, decreased revenue, huge uncertainty, opt in, advisers leaving, large buyers pulling out. Valuations should halve.
What would Buffet do?
When everyone is screaming sell, & provided you know your market….. Buy.
Bring on the exodus, bring on the pain, bring on the high education standards, it creates that cherry ripe moment like March 09 when you pin the ears back, pull the trigger & load up.
Me too 🙂
good call, am gonna load up on debt and buy buy [b]bye [/b][u][/u]
buffet[b]t[/b] is also worth USD $60bn he can make the occasional blunder and lose a bundle which he has done and not worry about it the next day, other than to choose a cheaper sausage mcmuffin the next day and save .35c
most of us are not in his position; as if we make a mistake, it will be a caravan park or tent for my family and I
the risk of buying a practice right now is really that great, and if you underestimate that, you do so knowingly at your own peril whatever you choose though good luck
It is more likely that the range of valuations will vary. Practises with quality relationships based on a proven CVP and processes to support compliance will be worth more and those that don’t will be worth less.
It’s pretty simple really. If you believe in your business and the value you offer clients then don’t sell if the offer is unacceptable. I have considered selling my business over the years but am very thankful that I haven’t as our clients have remained loyal and we have had increasing profits.
And lets not be nieve about the industry funds intentions – they are heavily funded by the unions as they palm their pockets – and they will do anything to win business. We saw a client this week who heard on the radio that HESTA was the best performing fund. We reviewed the asset allocation of the HESTA balanced fund and it has 14% property and infrastructure that they classify as defensive assets ? They therefore have a fund that is 90% in growth assets that is outperforming balanced funds with 65/70 % growth assets. This manipulation highlights their deceitful ambitions.
Exactly. I just had a client that was in an industry fund in the balanced (my super) option. He was under the impression it was a typical 50/50 split, but upon my research, I found that a whopping 98% was allocated to growth assets! This suggests a highly aggressive risk profile, not a typical balanced profile.
What a lot of alarmists, get on with what you do and do well, get in front of your clients, provide great advice and excellent service and your business will continue to grow, referral after referral. Having been in this industry for a fair while we have survived all the changes and are looking forward to jumping what ever hurdles are put in front of us, simply don’t retire and continue to receive your ongoing fee for advice, it is a great industry and will continue to be if you work hard at it 🙂
Problem being, there may no longer be an “ongoing fee for advice”. I see this fee at some point being made so difficult to justify, that advisers will need to turn off this fee and just charge for the review when/if one is done. This is arguably the way it should always have been. Why do we charge monthly fees to their investment anyway…if we only see them once a year for the “annual review”? The mistake most advisers made was promising an annual review and getting clients to sign service agreements – FAIL. It’s all changing and whether you provide a “great advice and excellent service” is now irrelevant. The method of charging is going to be dictated to us. Best be prepared.
I’m ok with that… just some balance to make compliance more realistic so that cost to serve drops. I think that if this is addressed then transition to this model can work and work really well.
I think that risk commission will need to be retained though… just like mortgage brokers, GI brokers etc..
Just charging for an annual review means no monitoring clients products and proactively alerting them when something needs changing. It means no monitoring the impact of legislative change on their situation and proactively alerting them when something needs changing. It means not assisting with them with all the admin stuff that inevitably pops up and goes unattended for too long if left to the client to action on their own.
These things provide peace of mind and add tangible value for consumers. Many are willing to pay for it. How is it in consumers interests to prevent them from being able to purchase this service?
I see your point, but if you look at this from a different pint of view, all of these things are simply opportunities for you to engage (and charge) your client for further work.
Nobody is suggesting that a long term relationship isn’t in the clients best interest, the only issue here is the structure of the fees by which they pay you.
The reason why many advisers charge an ongoing fee is not just for the annual advice but service – and sometimes intensive service. Providing service to our clients as distinct from advice (service enquiries, dealings with their accountant, lawyer, broker etc, updating an address or credit card, printing a statement etc etc) costs time and money.
We also need to fund the cost of maintaining a professional office, continued CPD, PI, a client file (for at least 7 years), licensing fees etc etc for many years post advice being given.
Neither the ongoing obligations of being an adviser nor the ongoing services we provide are free and they are rarely covered in the fees charged upfront.
The fact of the matter like anything there are 3 types of advisers on the HMS Titanic Advice Ship. Those kicking ice on the deck whilst the band is playing…usually saying HMS FPA will rescue us. The second type are in the life boats a little cold and wet but surviving and on their way home or working on getting there.. The third type are on the deck of another ship watching the fire works. So for the vast majority of advisers the future is looking good. I just smile every time a client tells me they kick a goal. If you always work at the minimum level, the minimum compliance level, the minimum education level you’ll be kicking ice one day too. We as advisers just need to control what we can, and that’s our own education, the way we charge and our relationship with clients. If we focus on that we’ll do well and flourish.
Good analogy, particularly the parts about the minimum level.
I propose the title change to “Practice valuations likely to collapse”. It’s not even the current headwinds that will drive them down it’s the digestion of changes from regulations past. Fofa required a 2 year opt in. Why would I buy a practice for more than 2x income when the hundreds of clients that don’t know me from a bar of soap can just turn off the income I paid money for? Professionalism brings with it the valuations that accountants and lawyers see – 1x earnings. Not that AMP needs another kick but has any analyst sat down to work our what their exposure is to their BOLR agreements? Those advisers will come calling.
Yeah a few analysts have and the liability is over $1bn if everyone was to exercise BOLR… Agree on the 1x earnings… The only reason planning practices are valued at higher multiples than other industries is that you can buy a book and offer minimal ‘service’ if the revenue is grandfathered… Thats about to go hopefully…
For too long ‘advisers’ have just bought books, paid off the loan from the revenue, then just bought more… Their practice ends up with thousands of ‘clients’ per adviser and all they get is a letter with an offer of a review if that… Plenty of the ‘clients’ have never been spoken to and many of the contact details arent even right. Shouldnt have been able to go on this long, we clearly cant self-regulate so our hand will be forced.
This article is a COMMENT, NOT fact, so don’t get too worried about the future. There may be some hills to climb along the way but stay positive. the future is bright so don’t let any commentator or fed minister stuff your day.
What absolute fool would even consider buying a book or practice? The compliance burden is enough to kill any business dead in its tracks. Why do you think the banks are dumping this ridiculous industry like a hot potatoe. You will dodge the biggest bullet in your life if you refrain from buying a practice. The education and ongoing study should scare off any potential entrant immediately. The cost of compliance is a killer. Whatever you think your business or book is worth, take of 70%. Then pray on your knees every night for a month that someone who doesn’t really understand what’s coming will be dumb enough to think this industry will get better.
Clients are no longer willing to accept you fees. They will compare you to etf rates, industry fund low cost funds and see your fee for service as a slap in the face.
You will be lucky to retain you current sleepy clients who value advice. The new wave of clients wont value advice and won’t put up with your mantra of service etc. if your lucky you will be able to charge them an hourly rate for one off meetings until they figure out it’s all available on google and ezines for free.
Sell your practice now for any price. You are invested in the equivalent of a blacksmith business and it will be worthless in a few short years.
THIS IS NOT A CONSPIRACY ALARMIST nutjob comment, it is FACT.
You are in an industry your FPA has DESTROYED. They have lobbied behind your back to destroy your business for the sole purpose of selling fees and courses.
Get out while you can. Don’t bury your head in the sand. It’s over. Get out.
I had no idea ETF’s offered strategic advice in their fees? Thanks for the heads up, Steven. Here I was thinking they were just market hugging investment options.
Steve works as General Manager of the Hesta retention team. Times are pretty good for some Steve and people will always pay for good advice. I’m Battle scared by FASEA, the GFC etc but hey I’m in a pretty good place and other advisers I speak with well yes have also been kicked…, but also are in a good place as well.
Steven has also been correct in his predictions, as manic as they can be. I wouldn’t be so relaxed about things. I dodged a bullet when i sold my practice. Now i’m an employee. A wise decision i think i made. Watch and wait for the eventual FDS and Opt-in on everything, and then watch as your loyal clients start turning off the revenue and just wanting to be charged when they seek further advice. That’s how normal businesses run. The advice industry has been an anomaly and that’s about to change.
I’m not saying Steve is crazy at all. Maybe just either a little conflicted and or scarred or both. In any regards, personally I’ll be pretty comfortable. You see since 2012 advisers have had a fiduciary relationship…which basically means walking in the shoes of clients. Unfortunately many FUM/AUM dealer groups don’t really tell you that aspect of the best interest obligations. So yes I agree 110% with your comments. There are plenty of clients out there that are willing and wanting and have the need, and more importantly value and get benefit by committing to an ongoing advice relationship. Where we differ with Steve is that he thinks no one ever gains from an “ongoing” relationship. That’s actually the greatest value we offer and businesses that focus on that relationship will be worth lot’s. If advisers don’t have that relationship or clients don’t have the need for it then yes, agree, they are in trouble.
It is virtually impossible to be compliant with “best interest duty”. A good lawyer who knows the FP industry will destroy your wafer thin reasonings. I’m sure that a lot of you are still,doing well out of the dumb clients you have. I’m not denying this. Your future is as bleak as a blacksmiths. I’m sure they couldn’t see the horse industry ever declining just as the blind cling on to their advice and service mantra. You are right, people need advice and direction but not at your cost that you need to charge to be compliant, it won’t work. Works now barely, it won’t work in the future..
??Life has always been a mixture of opportunity and difficulty. Focusing on opportunity, to a degree helps mitigate difficulty.
but being realistic and pragmatic is also beneficial Phillip. we as an industry are in the position today because of what the regulators and industry leaders have done or failed to do, this time isn’t going to be any different.
as it is said, history repeats itself.
As an adviser in my early 40’s, with the requisite FASEA approved degree to my name, this article would once have put a smile on my face. I have aspired to practice ownership for a few years, but didn’t have the resources to put this dream into effect. However, after what I heard from the RC, and the likely compliance burden that’s going to come off the back of it, I’m no longer sure that I’m a potential buyer – or even that I’ll stay in the profession at all. This is a shame, because I love the work I do and I passionately believe in the value of financial advice. But I have a family to support and the margins are going to be increasingly squeezed. The only segment of the industry who will be left standing after all this is done are the industry fund advisers. God help us all.
I fall into this category although not faesa compliant.. the risk/reward is out of kilter and I am also questioning long term benefit of staying in the industry.
the risk reward trade-off is simply not there
Same here. Word for word.
+ 1 see my comment below papa
You know what is ironic… the “dodgy” advisers will be long gone… the new professional planners will be scared off… just crazy, negative stuff. Hopefully the powers are smart enough to see this.
So what will consumers do? Either put their money into union funds and not get any insurance (exactly what Labor wants) or put their money into real estate and purchase junk insurance (exactly what Liberals want).
Removing consumer’s access to high quality professional advice is not an unintended consequence. It is entirely intended.
Yes mate, I am leaving as well. Next financial year will see me wrap up my business. I will not even sell, the clients can find their own adviser or I will refer them to FPA.
Jaded, disappointed, frustrated and angry. Just cannot take the uncertainty anymore, constantly looking for cash flow…. anxious and stressed all the time.
best of luck to those that stay.
Adios!!
Adiós, muchachos. think about the dealer groups, like dover they are going to lose 90% of their sales force
what mad person is going to fork out money to buy a practice in the near term
I am highly qualified, 40 years old already fasea compliant and over and above qualified than required for many years to come
have funds available and a highly profitable practice built brick by brick over 18 years
i’d like to expand and employ another adviser and support person, and buy a parcel of fees
am i going to? NO way! you would be insane to do so right now with the uncertainty
I think that this is what many are thinking… which is a shame. The flow on effect is enormous… yet another casualty of the unintended consequences that ASIC and Ms O’Dwyer have not bothered to understand. I wish someone would talk about the positives that we do.
I’m guessing articles like this will only serve to drive down values more quickly?