Increased longevity is changing the way financial advice businesses are being valued with buyers showing an increased interest in books of business with older clients.
Radar Results, Principal, John Birt said the value of practices with older clients had shifted upwards over the past six months for both life insurance and investments books as these clients were likely to need advice and products for much longer than in the past.
“Buyers are no longer concerned if risk clients purchased are over the age of 50, or 55 for that matter, as the likelihood of the policies remaining in force to the age of 65 is now higher due to people retiring at a later stage in life and having children later,” Birt said, adding that higher mortgage levels on principal residences was also extending the time people held onto insurance policies.
As a consequence of this shift, Birt said Radar Results had shifted the age bracket for advice businesses with older clients to over 55 years of age, up from 50 years of age.
Radar also reported that a risk client business with clients under 55 was now worth 3.3 to 3.5 times recurring revenue compared to figures from six months ago of 3.0 to 3.7 times recurring revenue for a risk client business with clients under 50.
A risk business with clients over 55 was now worth 2.5 to 2.8 times recurring revenue compared to figures from six months ago of 2.0 to 2.5 times for a risk business with clients over 51 years of age.
Birt also stated the Future of Financial Advice (FoFA) reforms were continuing to impact the price of fee for service businesses as buyers asked more questions around the source of revenue streams within the business.
“The additional red tape caused by FoFA reform has led to fee-for-service multiples for client registers, and planning books to either plateau or fall.”
According to Birt, practice buyers were asking questions around how many clients were grandfathered under FoFA before July 2013 and how many have since changed to opt-in clients due to changes in their situations and how new clients had come on-board since that date?
He added buyers were also asking how many clients needed to receive opt-in letters and Fee Disclosure Statements and what volume bonuses and over-ride bonuses would remain with the practice or cease after a sale.
“The additional red tape caused by FoFA reform has led to fee-for-service multiples for client registers, and planning books to either plateau or fall. Certainly, risk insurance books and businesses haven’t been affected by FoFA reform, and still command the highest multiples of recurring revenue within the financial service sector,” Birt said.
