Acquisitive practices don't want the burden of retirees
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Some financial planning practices looking for acquisitions are beginning to question the value of purchasing a practice with a retired client base.
Chris Wrightson, director of Centurion Market Makers, said there were early signs that the acquirers of financial planning practices are looking at a client base of retired clients as being of less value than younger long-term clients.
Wrightson said not only were the financial planners likely to have a diminishing asset base as a result of their clients drawing down on their assets, they were also unlikely to take up other services and products.
“You can’t really introduce mortgages if you want to do debt facilitation, you’re unlikely to sell life insurance, there’s a whole lot of things [you can’t do] … Their propensity to purchase services or products is lower,” he said.
Synchron director Don Trapnell said there were very limited opportunities to capitalise on clients’ investments or expand the risk side of a business if its clients are made up of retirees. Any due diligence regarding an acquisition needs to take client demographics into account, he said.
Data released from Business Health showed that an average 49 per cent of clients under a financial advice firm were over the age of 60 while 40 per cent of clients had already retired and were drawing down their assets.
Business Health partner Rod Bertino said market volatility and clients drawing down their assets would have a double impact on a financial planning firm’s funds under management.
Steve Davison, the head of acquisitions and succession planning at AXA, said any business that was heavily skewed towards retirees would reach a point where drawdowns would exceed accumulation payments to the business in an environment where accumulation was non-existent and asset values had declined.
However, it was possible for businesses that work with retirees to have a fee-for-service proposition that was not linked to assets under management, he said.
Stewart Creighton, the head of market specialists at the Commonwealth Bank, said consistent cash flow was important when it came to approving a loan for such a financial planning practice. If a practice’s client base will not last twice the length of the loan’s term, he said the practice needed to investigate options such as spreading the age distribution of its client base.
However, this wasn’t an issue the bank regularly encountered when approving a loan, Creighton added.
Tom Redacliffe, the general manager of Godfrey Pembroke, said a retired client base offered opportunities in terms of intergenerational advice and estate planning.
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