Older advisers plan industry exit

Incoming education standards are likely to see many older advisers leave the industry.

27-Jan-2016

By Sarah Kendell

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The incoming professional standards legislation was having a significant effect on transaction activity in the advice sector, with many older single-person operators looking to sell their practices and exit the industry in 2016, according to a new report from Centurion Market Makers.

Speaking to financialobserver, Centurion founder and chief executive Chris Wrightson said the approaching deadline for the legislation was proving the catalyst for many advisers to seriously consider selling their business.

“There are a lot of older risk writers in particular, those aged around 60, that are not going to make the education standards by 2019, and those people are starting to act and make preparations to sell,” Wrightson said.

“At the same time, you have a lot of younger advisers entering the industry out of banks and larger financial institutions that want to be their own boss and are keen to buy.”

The report revealed transaction activity in the financial planning space increased last year compared to 2014, with many small practices and client books sold for between two and three times their annual recurring revenue.

Wrightson said in spite of the life insurance framework (LIF) reforms due to come into force on 1 July, risk businesses were still doing well in terms of valuations because they offered the opportunity for repeat business from existing clients.

“If someone buys an advice business with $200,000 in recurring revenue from risk trail commission, you can go and see those clients and invoke some increases, so you could potentially generate around $400,000 a year,” he said.

“In a business where you have $200,000 in revenue from investment clients, you are not going to be able to generate that much extra unless you go out and find new clients.”

The report also indicated practice buyers were increasingly focused on the age profile of prospective client bases when purchasing a business as younger clients offered more cross-sell opportunities.

For those advisers considering exiting the industry in 2016, he advised seeking help to prepare adequately for the sale process.

“Most advisers go into the marketplace totally underprepared – before they start talking to buyers they need to think about what the sequence of messaging is that they are delivering,” he said.

“The way they take the business to market is also often flawed – they might approach just their colleagues in the industry, and it’s hard to maximise your sale value if you’re only talking to one or two buyers.

“A lot of people can spend up to two years trying to sell their business because they have the wrong process in place and they don’t prepare well."

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