Data released by Radar Results suggests there is currently a mis-match in the market between buyers and sellers of advice practices.
In its most recent market update, Radar Results Principal, John Birt, reports that, of those financial planners looking to buy an advice practice or client register, the majority only want to acquire a book that holds less than $500,000 in recurring revenue (mostly with an emphasis on levels less than $200,000), while he says there are many more sellers with practices for sale that boast in excess of $500,000 in recurring revenue.
Leading the way was the category of ‘risk clients with an average age of under 50 years’
While Mr Birt made no judgement as to why this this disparity exists, he did detail the differences between the types of advice practices placed for sale over the last six months and their recurring revenue multiples. Leading the way was the category of ‘risk clients with an average age of under 50 years’, who commanded a recurring revenue multiple of between 3.0 and 3.8. The second highest client category were ‘accumulator investment clients’, attracting 2.7 – 3.0 times recurring revenue, followed by ‘investment clients 65+’ (2.3 – 2.7 times) and ‘C and D investment and risk clients’ (1.5 – 2.5 times).
Of the eight client categories included in his report, Mr Birt noted a decline in demand for corporate super clients in the last six months, due to his contention that the Government’s MySuper product would be likely to ‘take over’ in the next few years. He also noted a decline in the recurring revenue range multiples for mortgage clients, due to banks cutting many forms of revenue which brokers had previously received. He did, however, signal that the average recurring revenue range of the C and D clients category has risen on the back of increasing buyer demand.
Mr Birt noted these multiples can vary, depending on the terms offered by the vendor, the actual location of the clients, their ages and the particular investment products recommended.
