Royal Commission Placing Pressure on Business Valuations

Financial advisers with smaller risk books are looking to exit the market as soon as possible, fearing an impact on business valuations from the Financial Services Royal Commission, according to one business broker.

Radar Results Principal, John Birt

Radar Results, Principal, John Birt said there had been an increase in the number of advisers with risk books between $100,000 and $200,00 of recurring revenue (RR) looking to sell ahead of the release of the Commission’s final report in February.

Birt said the Commission was a contributing factor to the sales but education and commission changes were also an issue for some advisers.

“Certainly, the higher education requirements are also scaring planners into making an early exit, not to mention the lower up-front commission system and the new two-year claw-back period for commissions,” he said, adding prices paid for smaller risk books moving been two and three times the annual RR.

Birt also noted that large risk books above $1 million in annual RR were still able to attract higher multiples and in 2018 buyer of these books were funded at an average multiple of more than 3.5 times the RR.