Younger advised clients sitting top of buyers’ wishlist

Financial advice businesses with a younger, wealthier client base are enjoying higher valuations and increased attention from potential buyers.

According to M&A consultant Radar Results’ latest Sellers Guide, financial advice practices with younger and wealthier accumulator clients remain highly attractive to prospective buyers.

Namely, buyers typically prefer clients who reside in metropolitan areas and are aged between 40 and 60, the guide stated, as well as clients who pay an annual fee of $3,000–$6,000.

On the other hand, clients aged over 70 tend to contribute less to the valuation of a business, Radar Results noted, due to their shrinking portfolios and there being fewer opportunities for advisers to offer additional services.

The firm’s data shows practices with investment and superannuation clients under the age of 64 typically generate recurring revenue multiples of 2.3x–3.0x. In comparison, businesses with investment and super clients aged over 80 years old are likely to see multiples of 0.9x–1.1x.

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“Younger, wealthier clients tend to attract higher multiples, while older clients, especially retirees, are valued less due to diminishing investment balances and reduced cross-selling opportunities,” the guide stated.

“Buyers are focusing on higher-quality registers that can deliver ongoing profitability.”

A key reason for this, explained Radar Results CEO John Birt, is advisers servicing younger clients who are actively growing their wealth can provide more fee-paying opportunities beyond pure financial planning services, such as mortgage broking or accounting.

“A younger client who is 30 or 40 – if they’re a professional like a doctor – might have a mortgage on their house. If they’re a top doctor in the top suburb, they might have a $5 million mortgage. That mortgage is paying a trail fee of 0.15 per cent usually, so it’s quite significant.

“So they’re ticking up $5,000 to $10,000 a year from the mortgage on the residential house that goes to the adviser or the mortgage broker, which tend to be sometimes the same person,” Birt told Money Management.

As advisers look to diversify their service offerings to meet clients’ increasingly complex needs, CoreData recently discovered 29 per cent of advice firms are offering mortgage broking services in-house.

Another 54 per cent of practices refer clients externally to a broker, reinforcing the critical role professional networks play in financial services.

Other common services beyond financial planning include insurance broking (27 per cent), tax advice (24 per cent), accounting (22 per cent) and stockbroking (21 per cent), CoreData found.

“Then you’ve also got investment properties. A lot of these people that are aged between 30 and 50 also might have their accounting work required. There’s more taxation fees. Now the financial planners can do tax, some of them, so they might pick up some taxation fee work,” Birt said.

Ultimately, this means advisers are able to produce a higher number of diversified income streams from a younger client than they can from an older client, he argued, leading to greater revenue and profitability in the eyes of a buyer.

He added: “If you’ve got a client in those affluent areas, it’s more sought after. [Those practices] tend to command higher prices and they actually sell more quickly, too.

“A lot more new business can come in from the children in the future. Children will grow up and they’ll get jobs; they will start wanting superannuation advice and wanting loans, home mortgages, and then they just want, want, want. If you don’t target the children, you’re silly from a marketing perspective, because you’ve already got a relationship with the parents.”