Life Books Still in Demand but Value Will Be Questioned


Despite concerns that changes to commission and remuneration structures may force advisers out of business valuations for risk advice businesses have remained steady according to business brokers.

However, risk advisers should not be complacent and should begin examining if their risk book will generate sufficient capital value at the time of sale, succession or retirement.

Radar Results, Principal, John Birt said advice businesses with large risk books were selling for around three to three and half times earnings and the demand for risk books has not decreased since about 2008.

However poorly maintained risk books are trading at lower prices being “valued at the purchase price paid, that is whatever people are happy to pay for the book”.

Birt said his group still sold around 30 life practices a year but was uncertain what the market would do once the Life Insurance Framework (LIF) was implemented.

“When the LIF is introduced it is likely prices will be cheaper because of the change in up front commissions but trails will be higher and so it may be unlikely that there will be a longer term impact,” Birt said.

Connect FS Chief, Paul Tynan
Connect FSB, Chief Executive, Paul Tynan

Connect Financial Services Brokers, Chief Executive, Paul Tynan said while prices have remained steady there was an increased focus on what was being sold with a greater need to focus on what was valuable.

“If an adviser has a book built around up-front commissions, they have nothing to sell. If there is no recurring value in their business then they can’t sell it,” Tynan said.

“There is no long term value in up fronts alone and claw-backs will be quarantined and priced accordingly.”

“The questions we have had around the LIF have ignored the problems of value in a risk practice, which is especially concerning for older advisers.”

“The questions are being asked whether an adviser can survive from one up-front sale to another but can they survive off that into retirement? People only buy recurring income or profit.”

“If an adviser has a book built around up-front commissions, they have nothing to sell.”

Tynan claims that a focus on up-front sales has been good for the product providers and institutions which own advice groups but not for advisers themselves but even institution are now starting to struggle with this strategy.

“It has served the big end of town well to sell product via distribution but technology is changing things and the Big Four are struggling to deal with their wealth management divisions and are struggling with advice relationships and product,” Tynan said.

“Life insurance is a product and a single issue piece of advice and it works well if part of a bigger advice offering but on its own it will struggle to answer the questions of ‘why is an adviser in business for the long term’ and ‘how will this create capital value for the future’.”