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Since Christmas prices paid for financial planning practices have stablised and in some cases, even reduced. The main 2 causes have been the downturn in the sharemarket and a change in supply with more sellers entering the market. Planners who were once considering staying in the industry have now decided to sell and not wait for a market recovery. Selling with lower trails now seems a better option than waiting and not knowing what’s going to happen in the next year or two. A planner’s average age is now nearly 60 and last year 23% of sellers who contacted Radar Results indicated they were selling due to ill health. Many said they were “just burnt out” after 20 years of looking after clients. Basically, they’ve just had enough and would like to either do something different or just spend time with their families.  So, what would you receive today for your FP business?

Prices paid for FP practices – last 5 months 

Radar Results experience shows that larger practices with a sale price of between $1M-$3M and situated in a capital city, will sell for 3.0-3.5 times recurring revenue (RR). Larger practices can also sell on an EBIT mutiple of 4-6 times – which hasn’t really changed. Smaller practices are selling for a slightly lower price multiple of between 3.0-3.2 times RR. We are finding country and regional FP practices tend to sell for an even lower multiple due to their isolation.

Often a practice will sell the lower end of their client base, commonly referred to as Cs and Ds. Surprisingly these prices have actually increased from around 2.0 times RR last year to 2.2-2.8 times RR now. It’s also interesting to find there’s a lot more of these types of books coming to the market place. Advisers find them easy to transfer to a buyer (usually within 30 days) and the additional capital can be used for an A grade client reward program, new offices or pay off debts. It’s hard to know when is the best time to sell but try and do it while you’re healthy. Remember, 1:4 sellers suggest their reason for selling is burn out or something more serious.   

If you’d like your practice valued so you’ll have an idea of what price to expect, just click on the link Valuation Questionnaire – which will take you 4 minutes to complete. We’ll have a written appraisal back to you in a few days. Any questions just give me a call on 02 4384 5670 Head Office – Central Coast NSW.

Last year prices paid for financial planning firms in Australia escalated. Radar Results data for 2007 revealed a high of 5.5 times recurring revenue was paid for a Brisbane CBD practice and a low of 1.8 times for a NSW country practice. The average was just over 3 times recurring revenue. The largest influence on the price paid for a FP practice was it’s location.

Supply of quality practices in capital cities still remains acutely short with Adelaide almost  barren. Perth was not far behind with buyers outstripping sellers 5 to 1.

Melbourne not only has buyers and sellers evenly matched but also had the highest level of activity last year, accounting for over 40% of Radar Results enquiries.

Last year Brisbane started quietly but during the quarter ending December 2007 sellers started coming onto the market. Sydney, which has always been a sought after city for buyers, saw prices escalate rapidly during 2007 due to low supply. The last quarter has seen more FP practices in Sydney move to “sell mode”.

In some instances price differential between country and city prices is almost half. In many country regions there are no buyers at all. I know of practices that have been for sale for over a year and haven’t even received an offer.

Another major influence on price was the size of the practice. FUM of $20-30M were snapped up in a few weeks; $50-100M FUM was much slower with price expectations by the seller rather ambitious. Dealerships of any size were in big demand especially if the total advisers numbered more than 5 and up to 100. Their in-house platform was the driving force behind this demand together with added distribution through the larger network. A possible ASX listing has become a popular strategy together with economies of scale from merging practices.

Looking ahead we expect around 2000 practices to change hands in the next 4 years. That’s about 10 a week; many of which may be offered first to staff and management, then the outside market. With the average age of a planner close to 60 and nearly 4 years of sustained share market growth, advisers are starting to lock in the value of their businesses now. As more sellers hit the market and supply increases, prices will fall.

Larger planning practices will benefit from merging with the smaller ones and some will list on the ASX. Eventually the smaller planning practices will basically disappear – similar to the corner store leaving monopolies like Woolworths and Coles to survive and dominate. It should be an interesting 2008.

Radar Results will be running a national business advice seminar program for financial planners “Retire or sea change?”. It will involve how to get your practice ready for sale even if you are 5 years away from that decision. The seminar will also explain what to expect from buyers and answer all those hard questions. To register your interest just click Seminar Registration send an email to Michele Conroy with your name and address and we’ll send you and invite. If you would like a valuation then click on this link Valuation and complete the 4 minute questionnaire. We’ll send you a valuation of what we think your business is worth now. Please phone me if you have any questions on 02 4384 5670.