March 13, 2018
Life insurance advice practices have continued to hold their value over the past year but the impact on practice valuations due to changes in professional standards is not yet clear, according to Centurion Market Makers.
In its recently released Financial Planning Practice Valuation Guide for 2018, the practice acquisition and sales consultancy noted that 2017 was a year of increased transaction activity compared with 2016 and 2015, which saw the implementation of major reforms such as FoFA.
As a result of this increased activity, Centurion explained that risk-only advice businesses were being transacted at 2.5 to 3.2 times recurring revenue. This figure was on par with full service financial planning practices which were selling at 2.6 to 3.2 times recurring revenue.
“…risk-only advice businesses were being transacted at 2.5 to 3.2 times recurring revenue”
Advisers looking at picking up a book of C and D clients were paying 2.0 to 2.7 times recurring revenue while the valuation of corporate super books remained low at 1.0 to 2.0 times recurring revenue.
Centurion added that these figures “…illustrate the range where the majority of transactions occurred, noting there will always be exceptions outside these ranges”.
The group added that questions were being asked in the market at present about the impact of education standards and the LIF regime based on the expectation some advisers will leave the industry and increase the supply of businesses for sale.
“In our view, it is too early to tell if either of these issues will impact the market value of businesses in the next 12 to 24 months,” Centurion stated.
The group added that while valuations may fall, financial advice practices “…tend to sell for more than equivalent-sized businesses in most other industries or professions when measured by revenue or profit multiples”.
This was because financial advice practices had monthly recurring revenue with little seasonality, low levels of working capital, low plant and equipment costs and zero inventory or stock, according to Centurion.