Risk practices retain value

Risk insurance financial planning practices will continue to be highly valued despite the Government’s Future of Financial Advice (FOFA) announcement of a prospective ban on commissions on insurance held inside superannuation, according to practice valuation specialists and brokers.

Kenyon Prendeville, Centurion Market Makers and Radar Results all agreed that risk practices continued to be highly sought-after and valued over the last year. While there was still some uncertainty around the FOFA package, the consensus was that risk practices were safe. However, the announcement last week may have some impact on bottom lines, according to Centurion’s Chris Wrightson.

“This will impact revenue for risk practices. However, since the risk commission ban targets superannuation-based insurance only and a quality risk practice will likely provide insurance outside of super, it may not be a major impact,” he said. “It will be interesting to see if more risk business is written outside of super when these reforms are implemented, given that’s where a commission is still payable.”

Kenyon Prendeville’s Alan Kenyon and Radar Result’s John Birt (pictured) agreed buyers and sellers were relaxed that there would not be huge implications for risk practices, and that valuations had remained high over the first quarter of the year. Kenyon said many believed grandfathering provisions would not only ensure that valuations remained as they were but that certain components of a business would actually be valued more highly. Wrightson said that good risk practices with experienced, quality risk writers would continue to be highly valued as there were relatively few risk writers.

The ban on insurance commissions in super may also impact those advising on self-managed superannuation funds (SMSFs), although Kenyon said that his understanding was that SMSFs would not be pulled into the ban and Wrightson said there was no direct reference to SMSFs in Treasury’s information pack released last week. Wrightson conceded that a footnote revealed that the Government did see the ban in the light of the Super System Review, which proposed that “upfront and trailing commissions and similar payments should be prohibited in respect to any insurance offered to any superannuation entity, including SMSFs”.

“SMSFs are superannuation, so on the basis that they were included in this area may have some impact since it is often higher insurance amounts that are written in SMSFs and this may have a revenue impact on risk practices,” said Wrightson.

Kenyon said it was likely that in general some businesses would lose value after 2013 as a result of the reforms, and Kenyon and Wrightson agreed that those with a high exposure to corporate super would be hardest hit. Wrightson guessed that 20 to 30 per cent of planners who owned their own businesses would have corporate super exposure.