The market for financial adviser businesses is booming, according to Chatswood Consulting director, Russell Hutchinson, but not for all books.
Hutchinson, who also a director of advisory practice broking firm Advicebridge, said there was a surge in buyer-interest in the post Financial Services Legislation Amendment (FSLAA) world.
He said year-to-date (FSLAA came into force this March) sales have generally been above current valuations and “higher than we expected”.
But Hutchinson said the market was bifurcating as buyers gave increasing weight to a few qualitative factors.
“We’ve found that for smaller books, that are either static or in rundown, and where the adviser is close to retirement with poor FSLAA compliance, the sale prospects are the worst they’ve ever been,” he said. “But for larger advice businesses, particularly those based in major cities, that have a growing book and good compliance practices there has never been a better time to sell.”
While Advicebridge mainly deals with insurance-type advisory businesses, many of them also have income-generating KiwiSaver and investment clients that are also becoming more sought-after.
For instance, two recent sales illustrate how buyers value investment books based on client metrics. According to Advicebridge data, the investment component of a mixed advisory business with an aging client base sold at about two-times annual revenue: a similar practice with a younger, growing client base saw some of the KiwiSaver and insurance parts of the client base go for above four-times (plus an earn out).
At the moment some larger, acquisitive advisory groups have built up war chests to fund further purchases, Hutchinson said, in anticipation of further FSLAA-related consolidation.
He said the current bullish market (at least for quality advice businesses) is supported, too, by low interest rates, more efficient post-acquisition merger processes by purchasing firms and a growing realisation among vendors that advisory businesses carry “significant value” at the moment.
“In this low-interest-rate environment there’s a lot of private capital seeking higher-return investments,” Hutchinson said.
Over 10,000 ‘financial advisers’ are now registered under FSLAA, up slightly from the previous regulatory regime estimate of 9,700, according to Advicebridge.
However, the firm expects further attrition ahead as perhaps 20 per cent of advisers exit before the end of the FSLAA two-year transition period in 2023.
After March 2023, all advisory firms will have to operate under a full licence with more onerous compliance duties than the current transitional version.