The value of financial planning practices has dropped by 10% following April’s Future of Financial Advice (FoFA) announcements, according to an industry consulting firm.
Radar Results, who specialise in helping financial advisers expand their practices through acquisition, says in the past two weeks it has seen a decrease in many financial planning firms’ valuations.
“A number of Radar Results clients have said they will not now pay the same level of recurring revenue, or EBIT multiple, that they were prepared to pay before the FoFA announcements,” said John Birt, the firm’s Principal.
Mr Birt said that valuers have reduced EBIT multiples by 0.5 times, which is equal to a reduction of approximately 10% of a practice’s value.
The firm also outlined concerns about the lack of clarity around grandfathering arrangements in relation to commissions:
The question is whether life insurance agents may have a part of their register rendered worthless
“Grandfathering has been presumed by most advisers to be automatic, however, [Mr] Shorten’s recent statement that ‘… issues around grandfathering arrangements will still be subject of further consultation’ is certainly not what planners wanted to hear,” said Mr Birt.
“The question is whether life insurance agents, who have been building up client registers for many years, may have a part of their register rendered worthless.”
“Certainly, retail risk policies written inside a personal super plan seem to be in the firing line,” added Mr Birt.
