6 MONTHLY PRICE GUIDE

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RADAR’S SIX MONTHLY PRICE GUIDE  

  An indication of prices as at 31 March 2017

(Changes since 31 October 2016 in red)

 

Revenue Type Recurring Revenue multiple
Investment and super clients (age 80 yrs+)  1.0x to 1.8x
Investment and super clients (age 65-79 yrs) 1.8x to 2.5x
Investment and super clients (age up to 64 yrs) 2.5x to 3.0x
Risk clients (under 55 years) 3.0x to 3.5x
Risk clients (over 55 years) 2.5x to 2.8x
Super clients – commission switched off Neg*
Corporate super clients – flat fee per employee      1.5x to 2.0x
Cs and Ds – mix of both risk and investment 2.0x to 2.5x
Mortgage clients 2.0x to 2.5x
Accounting fee – business clients 0.75x to 1.2x
Accounting fee – individual returns 0.5x to 0.9x

 

* No transactions

The above multiples can vary depending on the terms offered by the vendor, geographic location of the client, age of the client and the investment products within the client’s portfolio. Multiples paid for risk books or insurance revenue-based practices will vary depending on the client’s occupation, size of premium, type of policy (stepped or level) and geographic location of the client. The multiples displayed above are for high-quality risk clients. The table above is based on market activity over the past six months to 31 March 2017

 

THE MAIN CHANGES

 

OLDER FP INVESTMENT CLIENTS:

The main changes to the Radar Results Price Guide has been to the category titled, ‘Investment client’s 80-plus years of age’. We have seen client registers change hands at prices of up to 1.8 times the recurring revenue (RR), previously 1.5 times. Basically, demand for these clients has increased due to a shortage of registers for sale. Even now, the older client bases in the marketplace are looking attractive. Clients aged in their late 70’s have also seen higher demand, attracting prices between 1.8 to 2.5 times the RR.  Multiples of RR of up to 2.5 times are being paid for registers, where the average age of the client is close to 65 years.  

CORPORATE SUPER PLANS (FLAT FEE):

A sector where price multiples have fallen is the flat fee corporate superannuation area. In place of the former product provider commission payment system, some licensees are now paying advisers a flat fee per employee. This sector has seen minimal sales at lower multiples. As a result, the market multiple rate of 2.5 times RR has been moved down to a maximum of 2.0 times.

CORPORATE SUPER PLANS (NO COMMISSIONS):

There is now debate as to how much corporate super client registers are worth after the commissions have been turned off and there’s no arrangement in place with their licensee for a flat fee payment. Contrary to the MySuper principles contained in the FOFA legislation, there are instances in which commission payments will continue, where most of the employees have made an investment selection rather than just accepting the MySuper default option.

THE VALUE OF ACCRUED DEFAULT AMOUNT (ADA) CLIENTS:

Radar Results has been asked to place a value on ADA clients, where they have moved away from an employer’s sponsored super plan and left the balance under that employer’s plan. Some call these clients inactive, dormant or de-linked members of employer sponsored super plans. Their information may or may not be up-to-date, and can usually be accessed by the existing adviser by going to the product manager’s portal.

There are thoughts that ADA clients may be a liability if retained by the existing adviser, while others feel they are an asset and can be contacted and converted into quality FP clients.

ACCOUNTING FEES:

Prices being paid for lower end business accounting fees like BAS return work has fallen from 90 cents to 75 cents. At the higher end, management accounting fees, audit, trust and Self-Managed Super Fund (SMSF) administration fees have either stabilised or in some cases increased. Demand is such that price multiples could escalate to $1.50 in the $1.00 for quality accounting businesses primarily in the CBD and metropolitan regions. Radar Results has seen $1.80 in the $1.00 paid for SMSF compliance fees.

MORTGAGE BOOKS:

Demand for mortgage books will see the current price move further up in the next six to twelve months. Currently, the 2.0 to 2.5 times trail appears to be the market price, however, in instances in which there has been 100 per cent payment upfront, 2.7 to 2.8 times trail with no claw-back has occurred. I would not be surprised to see 3.0 times the trail become a common price paid by 2018/19.

RISK CLIENTS:

There is still a huge demand for risk clients, a demand which has not been dampened by the proposed new Life Insurance Legislation. Most demand has been for book sizes of $150,000 to $500,000 in annual renewal commissions. The age of the clients is important, and the younger the clients, the higher the price multiple. Whether the premiums have been written as stepped or level doesn’t appear to make a price difference.

Radar’s Six Monthly Price Guide

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An indication of prices as at 31 March 2016 

 

Revenue Type Recurring Revenue multiple
Investment and super clients (age 80 yrs+)  1.0x to 1.5x
Investment and super clients (age 65-79 yrs) 2.0x to 2.5x
Investment and super clients (age up to 64 yrs) 2.5x to 3.0x
Risk clients (under 55 years) 3.3x to 3.5x
Risk clients (over 55 years) 2.5x to 2.8x
Corporate super clients 0.0x to 0.5x
Cs and Ds – mix of both risk and investment 2.0x to 2.5x
Mortgage clients 2.0x to 2.5x
Accounting fee – business clients 0.9x to 1.2x
Accounting fee – individual returns 0.5x to 0.9x

 The above multiples can vary depending on the terms offered by the vendor, geographic location of the client, age of the client and the investment products within the client’s portfolio. Multiples paid for risk books or insurance revenue-based practices will vary depending on the client’s occupation, size of premium, type of policy (stepped or level) and geographic location of the client. The multiples displayed above are for high-quality risk clients. The table above is based on market activity over the past six months to 31 March 2016

THE MAIN CHANGES

The main change Radar Results has seen in the buying and selling market for financial planning practices has been the increase in demand for older investment and insurance-based clients, for example, where buyers had heavily discounted the multiple of recurring revenue for investment clients over the age of 75, there has been a trend to buy now at these attractive rates. Further, as the life expectancy of an 80-year-old female is now 10 years and eight years for a male, there is real value in these ‘older’ clients. Therefore, Radar Results’ Six-Monthly Price Guide has moved the age category from 75 years to 80 years and above.

Similarly, with risk insurance clients, the age bracket has been moved to over and under 55 years of age, replacing the previous 50-year-old age bracket. Once again, buyers are no longer concerned if risk clients purchased are over the age of 50, or 55 for that matter, as the likelihood of the policies remaining in force to the age of 65 is now higher due to people retiring at a later stage in life and having children later. The higher mortgage levels on the principal residence also need protection for longer.

EBIT MULTIPLES

The multiple paid for larger financial planning businesses has a price range of four to six times the normalised EBIT, up from 5.5x as the maximum rate. Radar Results has seen larger, better quality practices come to market, commanding EBIT multiples not seen since prior to the Global Financial Crisis (GFC).

The price range for mortgage management businesses is 3.5 to 4.0 times the normalised EBIT, and 3.5 to 4.5 times the normalised EBIT for large accounting practices.

 

LINGERING EFFECT OF FUTURE of FINANCIAL ADVICE (FOFA) REFORMS ON PRICE 

When selling your business, many more questions are now being asked by potential buyers, such as:

–      Do all your clients need a Fee Disclosure Statement (FDS) issued or just the fee-for-service clients?

–      Pre-July 2013, which of your clients are grandfathered under FoFA?

–      How many clients need an opt-in letter sent every two years?  

–      Since July 2013, how many clients are new?

–      How many are grandfathered clients, and have since had their investment and strategy substantially change, turning them now into opt-in clients?

–      Is the volume bonus going to move to my licensee?

–      Will the over-ride bonus previously paid by product providers to the vendor continue after the sale?

The additional red tape caused by FoFA reform has led to fee-for-service multiples for client registers, and planning books to either plateau or fall. Certainly, risk insurance books and businesses haven’t been affected by FoFA reform, and still command the highest multiples of recurring revenue within the financial service sector.

Accounting practices remain in high demand, particularly in the city and regional areas. Mortgage book prices are at an all-time high, and buyers are keen to pay cash for even the smallest books, for example, $2,000 per month trails. Unfortunately, the corporate superannuation section still suffers, with many planners not even prepared to make an offer. With commissions being turned off early next year, planners are now in search of institutions to replace these commissions with a flat fee per employee.