Radar’s Six Monthly Price Guide
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High Netwealth Clients In Big Demand
Radar Results has received a number of requests from financial planners looking to buy High Net Wealth (HNW) clients. To clarify, a HNW financial planning client can be described as one with investments under management of at least $1 million. Some advisers would say that an investment portfolio of this size is not particularly high nowadays. But, if both the husband and wife each own at least $1 million, then the family has $2 million in funds under management (FUM).
Depending on age, prices paid recently for these types of HNW clients can range from three to four times the annual fees. To receive a price multiple in this range, the preferred ages would be between 40 and 60 years. The Sydney CBD and north-west regions of Sydney seem to show the highest demand for this client style.
NON-OPT-IN WORTH MORE
When you buy a financial planning register or business which has clients that were established as a new client before 1 July 2013, they will not require an opt-in letter and are preserved as being non-opt-in clients. The pre-July 2013 clients will not require any opt-in letters to be sent, even if the adviser and licensee are completely new as a result of the sale. Demand for these non-opt-in clients has actually increased, and prices reflect this higher demand.
Interestingly, if a client moves from one adviser to another without being part of a sale transaction, then the grandfathering of the opt-in disappears. A letter must then be sent out every two years requesting confirmation from the client that they wish to continue with that adviser, and consequently receive the same services for the disclosed fees. If the letter is not returned, fees and commissions must be turned off. A reduced level of service offered to the client or an increase in fees, will also result in the preservation of non-opt-in being removed.
6 Monthly Price Guide
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
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.
Time to sell?
There’s really no such thing as an ideal time to sell your accounting or mortgage business, but if you have a financial planning business, now is the time to seriously consider selling. So, why now?
For several years, there’s been a lot of poor media on the planning industry, and with two parliamentary inquiries underway and a third one to start soon, the spotlight on financial planners is only going to heat up.
The educational requirement on planners has always been questioned, and the recommendation from industry associations is that a transition is required. If you don’t want to start a University Degree course or the equivalent, it’s time to retire or change professions. If your business is primarily investment focused with a lot of shares and your adviser service fee is aligned with the accountant balance, be wary of your revenue falling in another share market crash. With the world in political turmoil, October being the worst month for corrections, and after three years of upward share market movement, a downturn is expected. Another reason for planners looking to find a buyer now is finance. Just over 72% of clients signed with Radar Results require finance to buy a business or client register. Shortly after the GFC, you couldn’t get a cent of finance; banks are now nearly giving it away. With rumours swirling of interest rates set to increase and a second GFC on the way, now is the best time to sell.
The change to a fee-for-service model from the commission system will eventually reduce the value of your planning business. Recurring revenue multiples are set to be replaced by profitability valuations. However, the recurring revenue multiples being paid for financial planning businesses and client registers are currently at an all-time high, which can be attributed to the demand by buyers.
Radar Results, Australia’s largest buyer’s agent’s service, has over 200 financial planners and accountants under contract looking to buy businesses. Some have purchase budgets of $5M to $10M, while others want to spend just a few hundred thousand dollars. Cross selling other services, such as tax returns, loans and property sales is also holding up today’s ‘higher than normal’ prices.
The biggest concern I’m seeing is financial planners wanting to sell, but not having the business ready. Many still do not have a ‘press a button’ client list, or are not fully paperless. The old school planner from the life insurance days of the 70’s and 80’s wants to hang on and die with their business. They don’t actually want to die at their desk, they just don’t know how to take that next step.
Where’s the highest demand?
The financial services sector operates in a number of different areas, and buyers 
can choose from a number of sectors, such as accounting, SMSF’s, risk insurance, mortgage loans and general insurance.
Next month, Radar Results will produce its ‘6 Monthly Price Guide’ listing multiples that have been paid for these different types of businesses. But leaving multiples aside, which areas have the highest demand? Currently, it’s the high growth areas of Queensland, in particular the Sunshine Coast. Next is Adelaide and Perth, with financial planning and accounting in high demand as evidenced by the prices being paid.
Next is Sydney, specifically the northern suburbs and inner west looking for financial planning books; $150,000 of RR. South Sydney is a key demand area for mortgage books of any size with trails fetching up to two times, and the traditional risk insurance books still fetching 3.5 times if the clients are not too old.
Accounting businesses are required in Sydney’s CBD area, with tax fees commanding $1/$1, or even more.
Particular platforms are also in high demand, like Asgard, Navigator, Oasis, Summit and North. Some of Radar’s clients would pay four times recurring revenue if the age of the clients were to their liking and the location of the clients were geographically suitable.
Since 2011, there’s been 104 practices or books of clients sold through Radar, with a large proportion coming from NSW. While our head office is in NSW, you would expect a more even pattern state by state, particularly as we have had offices in all states since 2011.
| State |
Number |
| NSW |
42 |
| QLD |
27 |
| VIC |
13 |
| SA |
10 |
| WA |
10 |
| ACT |
2 |
| TAS |
1 |
| NT |
0 |
What’s selling, Who’s buying?
More financial planning practices and client registers have hit the market now that the Government has clarified grandfathering. In an amendment to the FOFA regulations, the following additional wording now has sellers and buyers very happy, ‘A person who purchases a business has the same rights under this regulation that the seller of the business would have had if the seller had not sold the business.’ Govt Exposure Draft 28 Jan 2014, Item 19.
Sell Buy Merge Experts, Radar Results, received last month 9 new practice listings to sell, virtually ending the drought that started last July.
In addition to an influx of new sellers of financial planning practices, we have seen higher demand than usual for mortgage books, forcing prices up. Recently a seller was offered two times the trail. Irrespective of where your mortgage book is located, Kalgoorlie, Alice Springs, Broken Hill or Townsville, buyers are paying cash 1.5x to 1.8x trail, no questions asked. And it doesn’t matter who is the aggregator.
Accounting practices have continued their climb up the ladder, probably being the second most sought after financial services business (to buy). Sellers in Sydney and Melbourne are the most popular, particularly if they have around $500,000 to $1M in accounting fees.
Corporate superannuation has made a recovery. After multiples had dropped to as low as zero, demand has now picked up, and so have prices. It really depends on who the fund manager is that’s providing the administration service, and which licensee the buyer’s with. Some licensees are paying their advisers, who are qualified corporate superannuation fund specialists, a flat annual fee per member to continue servicing the plan, even though the commission has been switched off. In some cases, the flat fee is higher than the commission that was being paid originally. Hence, multiples have moved up to 1.5x to 2.0x. Depending on the licensee, a buyer of last resort (BOLR) can be offerd up to 3x the revenue.
D-Linked corporate super clients still have some value depending on which institution manages the fund. Some super fund administrators can guarantee the payment of revenue for up to 3 years, or until 2017, at which time commissions must cease.
Queensland is still the busiest state for Radar Results with currently 25 practices looking to sell, followed by NSW with 24, Victoria 10, WA 8, TAS 1, NT 1 and SA 1.
6 monthly valuation guide
PRICE MULTIPLES REMAIN STABLE
Radar Results, M&A consultants to the financial services industry, has provided its six-monthly price guide on the value of financial planning and accounting practices. Since Radar Results lodged a Submission to Senator the Hon Arthur Sinodinos, Assistant Treasurer, regarding a decision on the issue of the grandfathering legislation and how it is inhibiting practices from moving between licensees, industry sources suggest that practice values have fallen. John Birt, Principal for Radar Results, states “Valuations have remained stable; but the effect is that since July this year many sale transactions have stalled”.
RADAR’S 6 MONTHLY PRICE GUIDE
An indication of prices as at November 2013:
| Revenue Type |
Multiple of Recurring Revenue |
| Investment clients 65yrs+ |
2.3x to 2.7x |
| Investment clients age 35-64yrs |
2.7x to 3.0x |
| Risk clients (average age under 50 years) |
3.0x to 3.8x |
| Corporate super clients (down from 0.8x to1.3x) |
0.5x to 1.0x |
| Cs and Ds (investment and risk) |
1.5x to 2.5x |
| General insurance |
1.5. to 2.0x |
| Mortgage clients (up from 1.2x to 1.7x) |
1.5x to 1.9x |
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Accounting fees (lower end fees up from 0.65x, top end down from 1.4x) |
0.80x to 1.2x
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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. The multiples displayed above are for high-quality risk clients.
The table above is based on market activity for the last 6 months to 31 October 2013. The multiples above can vary depending on terms offered by the vendor, actual location of the clients, client ages and the recommended investment products.
Change in the price range since April 2013 has been evident in three sectors. The number of corporate super clients selling multiples has again fallen, due to the 
Government’s MySuper product being likely to ‘take over’ in the next few years; the number of mortgage clients has increased due to the demand for this style of client and trail revenue, with cross-selling opportunities being the main driver; and accounting fees have risen on the back of buyers’ demand. Once again, cross-selling opportunities with accounting clients, along with the ability to offer a ‘one stop shop’, are the drivers here. When a practice which is selling has a total revenue of at least $1M, an EBIT multiple may be applied to its valuation rather than a multiple of recurring revenue. Interestingly, concerns around FOFA have not lowered valuation multiples; if anything, in some states such as WA, VIC and NSW, they have increased. EBIT multiples have remained steady since FOFA was introduced and can vary from 4 times to 6.5 times, depending on the practice. More commonly, an EBIT range is between 4.5 times and 6 times.
CHOPPING UP A BOOK
What’s called ‘chopping up a book’ can often give the seller more money. Radar Results has many clients around Australia who would love to acquire part of a business. Chopping up books has become popular with sellers who find their business is too large to sell easily. Instead of waiting months, or even years, to find a buyer who wants a large business, sections of the book, like the mortgage loan trails, can be on-sold easily and quickly; allowing risk clients, investments clients and even accounting clients to be separately offered to different buyers. Generally the purchaser is likely to pay the seller a higher price for the individual sections because their appetite has been satisfied.
FOFA Causes Havoc
RADAR RESULTS – SPONSOR FOR 2013 SYDNEY FPA CONFERENCE
Radar Results, M&A consultants to the financial planning industry, recommend you visit their stand at this year’s annual FPA Conference to be held in Sydney. From 17 October to 18 October you can have access to Radar’s expert consultants in the area of practice valuations, advice on buying a financial planning business or if you wish to sell, what to do. Not only can the Radar consultants provide advice on financial planning businesses, but also on accounting practices, mortgage businesses, SMSF client registers and risk books.
FOFA CAUSING HAVOC
FOFA was introduced to give more Australians better advice at a lower cost. Some aspects of FOFA are doing the opposite; stopping planners from moving some clients from a commission system to a fee arrangement, basically to save the planner from more ‘paperwork’ and responsibility.
An annual Fee Disclosure Statement (FDS) now needs to be sent out to all clients who pay the planner a fee. The FDS must state what services were provided over the past year and at what fee level, plus what services will be provided next year and at what fee level.
A long serving planner recently suggested that a fee of $1,700 ‘sounds about 
right’ as a fee for an annual review. When quizzed on how he arrived at that amount, he said “Well, they have about $300,000 in FUM; what do you think John”. I replied “I think it should be based on what value you have delivered, and plan to deliver in the next 12 months.” I asked what the planner did for the client now “nothing, unless they call me and ask for a review” answered the planner. This is not an uncommon occurrence.
It would be good if planners could measure what it costs to look after that client for the year, and then going forward, determine a fee based on costs. I know it sounds difficult and complex, but for most of the 90’s that’s exactly what went on with accounting firms I worked with.
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