August 28, 2018
The number of life insurance advice businesses for sale has spiked, according to a financial advice business broker, who claims the increase is a result of the impact of Life Insurance Framework (LIF) and proposed new education standards.
Radar Results Principal, John Birt said the impact of LIF and the FASEA education proposals has also pushed down the value of high-quality risk books for sale by eight per cent.
Birt said the value of a risk practice with clients under 55 years was worth 2.5 to 3.2 times recurring revenue down from 3.5 times in March 2018. A similar drop in value was evident in a risk practice with clients over 55 years which were being valued at 2.2 to 2.6 times recurring revenue, down from 2.8 times in March of this year.
“There is more risk insurance businesses on the market now than at any other time that I can recall”
He attributed the downturn in practice valuations to the introduction of LIF on 1 January this year, with advisers concerned about the reduced level of up-front commissions and the two-year clawback period, as well as the need to return to study if the FASEA education proposals are implemented.
Birt said these issues, combined with the impact of the Financial Services Royal Commission, “…has influenced more businesses to come to market. With many more sellers now in the market, there’s a larger choice, and a decline in prices now offered”.
“There is more risk insurance businesses on the market now than at any other time that I can recall,” he said, adding the numbers of risk advice businesses being offered for sale through Radar Results had risen five-fold.
“We have been operating for 12 years and typically we have three to four risk advice businesses, among the 80 to 100 advice businesses, on the books for sale at any time. In recent months, however, that number has increased to around 20 risk advice businesses,” Birt said.
He added that advisers looking to sell a risk advice practice were evenly split among those leaving because of the changes to education standards, and those concerned about the impact of LIF, and any possible future changes that may come out of the Royal Commission.