The number of financial planners who have approached Radar Results wanting to sell their business has increased by 50% from January 2009. We had 42 practices for sale in January and now have 63 serious sellers. Based on fee revenue and purchase numbers, the last quarter (July to September) was Radar’s best ever result.
 
Michele Conroy, Operations Manager and part owner of Radar Results expects nearly 100 practices to be purchased by Radar clients during 2010. Michele said “that’s about 20 practices per office per year, not allowing for the new office that will shortly open in Perth.”
 
The number of valuations provided to the financial planning industry by Radar Results has been lower than compared to the same period last year, although for the last 3 months the rate has picked up to 15 valuations per month. This is a good barometer for increased activity in the FP buying and selling sector from now till Xmas.
 
Since commencing business in 2005, Radar Results has prepared 319 valuations of which 118 have indicated they wish to sell in the next 1-3 years. Our records indicate that for every 4 valuations we do a sale is imminent with the transaction usually taking place within a 3 month period.
 
Interestingly, this year, several of our buying clients “turned around” and actually sold their financial planning business internally to another Radar client. This is somewhat rare and suggests the pressure the planning industry has been under for the past two years, effectively turning buyers in sellers.

New Sydney Office – Mosman NSW

 Introducing our New Associate – Patrick Walford

Patrick has over 10 years experience in the financial services industry in a variety of middle management, practice management and operational roles. Patrick was responsible for the support and growth of a national financial planning group, helping its advisors achieve their business goals. This included the development and implementation of a tailored and structured Practice Management Program.

Most recently Patrick was responsible for building a vibrant financial planning division within a multi-disciplined Sydney practice. He was also the State Manager for this leading national financial planning group.

This skill and knowledge of the planning industry will help Sydney based clients of Radar Results.
 
To contact Patrick Walford please call 0423 867 994 or email patrick@radarresults.com.au

Recent Newspaper and Finance Magazine articles suggest that banks have not changed their lending criteria. This is questionable when they are knocking back a lot more loans than previously. This year Radar Results will help around 40 clients with their finance applications to acquire a financial planning business. Matt Taylor, Radar’s Melbourne Manager, feels that bank lending practices have changed. “They [the banks] have dramatically changed to a point where they are snubbing property when offered as security. I can’t believe that an adviser putting up his home, his FP business plus the one he wants to buy, is still declined.” Institutions say that while there are enough assets, the cash flow’s not there. Right or wrong, this is a huge change in appetite from only 12 months ago and is certainly not helping the financial planning industry. The banks have a legal obligation to notify their lenders when they breach a covenant or loan condition. Radar is seeing more and more breach notices being issued with some practices having to be sold, or partly sold to repay a portion of their loan. To have your planning business valued just go to the Valuation Questionnaire Page.

Introducing our New Associate – Narelle Burke 

Narelle brings with her fifteen years of funds management, platform, practice management and financial planning experience.
 
Narelle’s previous roles have included four and a half years with HSBC Asset Management as their State Manager – Queensland, Business Development Manager roles with Great Southern Securities and Norwich Union (Now AVIVA) and administration roles within AMP in both their Head Office in Sydney and their regional office in Toowong in Brisbane.
 
Narelle’s most recent role has been working as the Business Development Manager in her husband’s financial planning office where they operate under their own dealers licence. As an authorised representative she has also been providing Financial Planning advice and ongoing education to clients of the practice.
 
Having worked closely with financial planners and accountants throughout Queensland for most of her working life, Narelle has had first hand experience assisting in the transition of businesses; before, after and during acquisition.
 
To contact Narelle Burke please call 07 3391 2490 – Mobile 0400 020 907 or email narelle@radarresults.com.au

 6,000 Planners to go ; down to 10,000?

There has always been debate on how many financial planners we actually have here in Australia. Some say it reached 25,000 during the 1980’s. When minimum educational requirements were introduced, it halved. Choice Magazine recently claimed we have 16,000 planners – but how many are actually practicing. Choice also claimed that the number of planners in Australia could fall to as low as 10,000 due to the poor economic times. If you are leaving the planning industry as an employee and would like to acquire a FP business or book of clients, please go to the Buying a Financial Planning Business Page.

It has been 4 months since my last Newsletter and since then markets have slipped another 20%, or even more. We now have a full year of downturn to measure past recurring revenue and EBIT values. This will help buyers and sellers of FP firms to know what their business is really worth today. You cannot use recurring revenue in the good years to strike a value on your business today – It just doesn’t work! Until we have moved back into a consistently rising market you have to draw a line in the sand and assess what a FP business is worth on today’s figures.

Many planners feel that markets will increase 20-30% from now. This coincidentally is the same thought pattern they had 12 months ago, 6 months ago and even 3 months ago. This is the theory of an eternal optimist but unfortunately reality kicks in and the buyer of your FP business wants some protection in case markets move down further, even if you think they’re going to go up. As well, clients could leave during the transition period. A seller may like to benefit from a rising market (the optimist) so a suitable rise and fall clause can be used. Should the rise and fall clause be based on market fluctuations, client numbers or both? Sale Contracts reviewed regularly by Associates of Radar Results reveal rise and fall clauses can differ substantially so you should seek advice in this area.

Last year Radar Results provided 180 valuations for the financial planning industry. The measurement of recurring revenue now needs to be calculated before the sale and again after settlement. Sure you need to arrive at a price for the Contract but the actual amount paid to the seller down the track can vary immensely. Recently an offer of 2.8 times recurring revenue (RR) for a FP business (based on the last 12 months RR) meant the buyer was actually paying over 4.1 times RR. You may now have to use the last 6 months annualised or the last 3 months annualised to arrive at a realistic RR value. Or, just leave it up to future income streams of the business and have a long payout period. It’s a dilemma.

Recurring revenue (RR) multiples have fallen further since September 2008 (my last Newsletter) and are now between 2x and 3x RR while EBIT multiples have steadied at between 4 to 6 times. If you would like a confidential valuation of your planning business, contact our Head Office on PH 02 4384 5670 or click on the Valuation Questionnaire Tab on the left. 

Dilemma for sellers – client loyalty and over supply?

If you didn’t sell your FP business last year, when should you sell? A year or two from now could be even a worse time to sell your FP business if by Christmas unemployment in Australia and overseas reaches 10% and the sharemarkets move down another 20%.

All of this unrest will really test client loyalty and retaining clients during a sale process will become more difficult this year and even more dangerous in 2010.  Changes in dealership, adviser and even changes in the office location might be just a bit too much for some clients. They may stay loyal for 1 year of unrest but maybe not for 2 or 3 years if the bad news continues. Another valid reason for selling now rather than later. The financial planning industry, as I knew it, has been decimated and it could take up to 5 or 10 years to recover. With the average age of planners nearing 60 years old, you should ask yourself “just how long do I hang on for?”

We have seen the largest downturn since the 1930’s and the winners will be those planners who are cashed up and know that they are now in a Buyer’s market. They can borrow at 5.6% (interest only) and acquire as many planning registers as they like. When could you in the past borrow at a commercial interest rate of 5.6% and acquire quality assets such as financial planning firms? Answer: Not in my lifetime.

The average adviser’s age is still rising and more FP practices will come onto the market forcing prices down even further. I would suggest that in 2 -3 years from now multiples paid for recurring revenues could average below 2 times based on supply and demand.  If you would like a confidential valuation of your financial planning business just click on the Valuation Questionnaire Tab on the left.

Radar Results provide a confidential consulting service to the financial planning industry.

FPA Sponsors 2008

Radar Results sponsored last years FPA National Conference and received overwhelming feed back from planners and also from other Sponsors. We look forward to this years event and a number of our Associates attending.

AIOFP Sponsors 2008

Radar Results sponsored last years Association of Independently Owned Financial Planners (AIOFP) Conference held on the Gold Coast. E-mail me if you would like to meet a Radar Associate in your area for a private discussion about your FP business. john@radarresults.com.au or phone me on PH 02 4384 5670.

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.