What makes an attractive advice practice?
A financial advice firm valuer has shared the top five factors that make an advice practice attractive for buyers plus the five which detract from the value of a business.
Speaking at the ifa Future Forum in Sydney, Steve Prendeville, founder of Forte Asset Solutions, said there were various factors that determined the value of a practice beyond their client book.
The top five factors which made an advice practice attractive were having a profitable business, fixed fees, good age demographic of younger clients, high net worth (HNW) clients and cultural alignment.
A HNW client was described as one which had an average balance of $1 million dollars while any practice where the clients had an average balance below $600k was perceived to be difficult to be profitable.
On the other hand, the top factors which detracted from the value of a business were having a regional location, an aged client base which was described as a “mortality risk” for a business, low funds under management, low fees and profitability and poor systems and processes.
A further problem was if a firm had a compliance issue, particularly if it was an ongoing or unresolved issue.
“Good compliance is essential, you have to stay within the lines. There is no one who is going to want to buy a firm and fix a compliance problem.”
He said his firm had seen a smaller number of sellers currently with around six sellers on his books compared to 12 normally.
This was leading to deals taking longer to complete as sellers had more buyers to choose from so they could take their time to find the right fit and ensure a seamless transition for clients.
Although many people thought the adviser exodus would have led to a high volume of sellers, Prendeville said this was not the case as many of those who exited were accountants or salaried bank advisers who did not have a business to sell.
AUTHOR
Laura Dew
Recommended for you
Sequoia Financial Group has declined by five financial advisers in the past week, four of whom have opened up a new AFSL, according to Wealth Data.
Insignia Financial chief executive Scott Hartley has detailed whether the firm will be selecting an exclusive bidder for the second phase of due diligence as it awaits revised bids from three private equity players.
Insignia Financial has reported a statutory net loss after tax of $17 million in its first half results, although the firm has noted cost optimisation means this is an improvement from a $50 million loss last year.
With alternative funds being described as “impossible” for fund managers to target towards advisers without the support of BDMs for education, Money Management explores the evolving nature of the distribution role.
