6 Monthly Price Guide

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An indication of prices as at September 2015:

Revenue Type Recurring Revenue multiple
Investment and super clients (over 75 years of age)  1.0x to 1.5x
Investment and super clients (65-74 years of age) 2.0x to 2.5x
Investment and super clients (up to 64 years of age) 2.5x to 3.0x
Risk clients (under 50 years of age) 3.0x to 3.7x
Risk clients (over 51 years of age) 2.0x to 2.5x
Corporate super clients 0.5x to 1.0x
C’s and D’s (investment ‘grandfathered’ and risk) 2.0x to 2.5x
Mortgage clients 2.0x to 2.5x
Accounting fees – business clients 0.9x to 1.4x
Accounting fee – individual returns 0.5x to 0.9x

 The above multiples can vary depending upon the terms offered by the vendor, geographic location of the clients, age of the clients and the investment products within the client portfolios. Multiples paid for risk books or insurance-revenue based practices will vary depending upon the client’s occupation, size of premium, type of policy (stepped or level) and geographic location of the clients. The above multiples are for high-quality risk clients.

The above table is based on market activity over the past six months to September 2015.

The multiple of recurring revenue paid for a financial planning register can vary depending upon the payment terms offered by the vendor, location of the clients, age of the clients and the type of product or platform in which the client has invested.

The multiple paid for risk books will vary depending upon the size of the sum assured, the premium and how it’s paid, the insurance company (product provider), whether the insurance is hybrid (combination of stepped and level premiums) and whether the insurance commission was  paid up-front, for example, 100% up-front with a small 10% renewal trail.

The multiple paid for mortgage book trails will vary according to the size of each loan, the occupation of the borrower, whether the loans were written as variable or fixed, age of each loan and the aggregator.

The multiple paid for larger financial planning businesses has a range of four to five-and-a-half times the normalised EBIT. The price range for mortgage management businesses is three-and-a-half to four times normalised EBIT, and large accounting practices range from three-and-a-half to four-and-a-half time normalised EBIT.

Once again, multiples paid for smaller accounting businesses ($500K to $1M in fees) have risen as a result of demand being higher than it was at the time of the last survey. The highest demand for this price range comes from financial planning practices, or accountants heavily into financial planning, and who wish to bolster the opportunity to cross-sell financial services to newly-acquired tax clients.

In summary, prices paid for financial planning businesses based on profit has fallen. The opposite has occurred for accounting businesses and trail revenue connected with loan books, with both rising due to demand.

TURNING C and D PLANNING CLIENTS INTO A’s and B’s:

In June this year, Radar Results outsourced the telemarketing division of its business to a Newcastle-based company, Hot Source Marketing (HSM). HSM has a six-person team devoted to contacting Radar’s data base of 9,500 planners, accountants and mortgage brokers.

So far, the results have been brilliant, with 21 practices located that are looking to sell or merge their respective businesses, and to this point we are only 20% into the data base. In addition, all planners (over 300) who were in attendance at one of Radar’s Seller’s Workshops since 2010 when FOFA was announced, will be contacted. Planners and accountants who requested a DIY Sellers Kit in the past will be contacted discreetly, and HSM will get in touch with Radar’s 280 buyer clients to ask some key questions. Finally, 900 planners and accountants who had previously requested a Fee Appraisal from Radar Results will be telephoned. 

HSM can phone your database of C’s and D’s, including orphans, and arrange meetings with those who show promise or require advice. If the orphan doesn’t have a relevant contact number, HSM can locate the most current details, such as address and phone number. Any business that doesn’t have the time to contact their C’s and D’s, or possibly can’t locate their client, should be utilising the services offered by HSM. HSM operates on an hourly rate.

 

Radar’s six monthly price guide

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An indication of prices as at January 2015

 

Revenue Type Recurring Revenue multiple
Investment and super clients (age 75 yrs+) 1.0x to 1.5x
Investment and super clients (age 65-74 yrs) 2.0x to 2.5x
Investment and super clients (age 30-64 yrs) 2.5x to 3.5x
Investment clients on Platforms with ‘high’ MERs# Up to 4.0x
Risk clients (age under 50 years) 3.0x to 4.0x
Corporate super clients 0.5x to 1.0x
Cs and Ds (investment and risk) 2.0x to 2.5x
General insurance 2.0x to 2.2x
Mortgage clients 2.0x to 2.5x
Accounting fees – Fees on non-business clients ie individual returns, is generally lower 0.3x to 0.6x 0.9x to 1.2x

 

The multiples above can vary depending on the terms offered by the vendor, actual location of the clients, client ages and the particular investment products recommended. In relation to multiples paid for risk books or insurance-revenue based practices, the client’s occupation, premium size, policy type and insurance companies used are all critical factors. The multiples displayed above are for high-quality risk clients. # Management Expense Ratios (MER) can vary from platform to platform, however, 2% per annum before adding buy/sell spreads and adviser fees would be considered ‘high’.   

The table above is based on market activity over the past six months to 31 January 2015.

The multiple of recurring revenue paid for a financial planning register can vary depending on terms offered by the vendor, location of the clients, age of the clients and the investment products which had been used previously.

The multiple paid for risk books will vary depending on the size of the sum assured, the premium and how it’s paid, the insurance company (product provider), whether the insurance is hybrid (combination of stepped and level premiums) and whether the insurance commission accepted by the adviser was all paid up-front.

The multiple paid for mortgage book trails will vary according to the size of each loan, the occupation of the borrower, whether the loans were written as variable or fixed, age of each loan and who’s the aggregator.

The multiple paid for a general insurance register depends on the level of domestic insurances compared with commercial insurance. Domestic includes car, house and contents insurance. Commercial would include office buildings, PI insurance, business insurance packages, including public liability. Commercial insurance attracts a higher multiple and the location of the business also plays a role.

Multiples paid for accounting businesses have risen once again and the demand is higher than ever. Not only do accounting practices wish to buy or merge with other accounting practices, but financial planners are also buying into these businesses. Business accounting fees, as compared to individual return fees, are in high demand and can command a higher multiple. The selling of country and regional practices can take a lot longer due to the limited number of buyers in those areas and they tend to sell for a lower multiple than city-based practices.

I’ve added an additional sector, ‘Investment clients on platforms with high Management Expense Ratios (MERs). So, what’s a high MER? Tony Blythe, Relationship and Training Manager for boutique licensee HNW Planning, suggests that before you add buy/sell spreads and adviser fees, some platforms can have a MER of up to 2% per annum. These platforms can sell for up to four times their recurring revenue (RR). The purchasing adviser can move the client’s investment to a lower priced platform, and at the same time increase the adviser fee commensurate with the service they are providing. Overall, this can save the client up to 1.5% per annum.