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Matthew Gadsden JANA
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Opinion:
Large client books to nab premium Annabelle Dickson
he market for the sale and purchase of finanT cial adviser client books has seen an uptick of activity following the increased regulatory burden financial advisers are faced with, but it’s not quite the buyer’s market one might assume. Forte Asset Solutions director Steve Prendeville says advisers that come to him to sell their client books are doing so because they are working harder and earning less. And so are the buyers. The buyers, Prendeville says, are typically looking to reap size and scale benefits in acquiring client books, as a result of increased operational costs. “Demand has increased considerably because the cost of production has increased substantially with dealer fees, increasing PI insurance, increasing ASIC levies, and we’re starting to see increased labour costs as well,” he says. Prendeville says the increase in supply of client books picked up in the December quarter 2020 and has flowed through to this year. “It was low for three years as the market was artificially suppressed, mainly due to the unknowns of the Royal Commission, the educational criteria and also COVID-19,” he explains. But now, it is one of the best seller’s markets that Prendeville has seen. After listing three new businesses, he received 50 individual enquiries when he normally would have received up to 20. “The seller is getting to choose the best adviser for their clients,” he says. Connect Financial Services brokers chief executive Paul Tynan agrees and says he is seeing a lot more buyer engagement. “My normal business model is if someone wants to sell, they come to me, but I’ve got a lot more people that just want to engage me because they have a specific mandate which they are looking for,” Tynan says. Tynan refers to himself as the eHarmony of the advice industry, placing 80% of his service on the matching process but the increased red tape is becoming a recurring theme for sellers. “I’ve also started seeing more and more people panicking because they have failed [the] FASEA [exam]” he says. “This is their whole livelihood and they have been working for 35 years they are really panicking about what to do, should they just sell or go back and do the exam again as they’ve only got two extra opportunities.”
Tynan expects between 5500 and 6000 advisers to leave the industry by March 2022 and more books to come on the market. Moreover, the increase in both supply and demand led to Prendeville seeing an increase in client book valuations. “Last year on average valuations were 2.5x recurring revenue and 6x earnings before interest and tax (EBIT),” he says. Now, Prendeville is seeing 2.75x recurring revenue. “We’re still at 6x EBIT but the profit levels have increased so purchase prices are increasing,” he says. Meanwhile, Radar Results founder John Birt says his typical buyer is looking for client books with around 100 to 200 clients between the ages of 35 and 55 with a fee for service arrangement of about $5000 per annum. “We probably have 30 or 40 boutique buyers with their own AFSL that are paying between 2.2x recurring revenue up to about 2.5x,” he says. However, Tynan says the value of smaller books has decreased because the buyers are becoming more specific. “A lot of people are needing to cull a lot of books. The bottom 20% to 30% is not sellable because they are too small,” he says. “People in the industry won’t see a client list that has got $3000 in annual fees per year. The mum and dad type books are in trouble.” As for why they’re selling, Prendeville says many advisers are doing so as a retirement strategy. While others are happy to stay in the business but no longer want the complete operational responsibility. Tynan agrees. He recently dealt with an adviser that was able to sell the client book for $8 million while staying on board as an employee, which he says eliminated the stress of ownership. “He received the payment and got a contract to stay on for three years to keep advising the same clients. It’s about lifestyle,” he says. Looking forward, Prendeville, Tynan and Birt all agree the momentum is unlikely to slow anytime soon, with the final FASEA exam slated for November. “A lot of the risk advisers that have been around for 30 years will likely not want to do the exam and so they’ll sell, either internally or through a broker like me,” Birt says. fs
19 April 2021 | Volume 19 Number 07 www.financialstandard.com.au 20 January 2020 | Volume 18 Number 01
Feature:
Between the lines:
Profile:
Super stapling logic subverted Karren Vergara
Steve Prendeville
director Forte Asset Solutions
Australia’s largest superannuation fund is taking issue with the proposed stapling regulations, arguing that the model is backwards and will not protect members from being stuck in dud funds. AustralianSuper chief executive Ian Silk shot down media speculation that the $203 billion super fund is advocating for a top 10 best-in-show MySuper list to be embedded in the pending Your Future Your Super bill. He told the Senate Economics Legislation Committee discussing the new legislation that members must be protected from being stapled to underperforming funds. He is not confident that the bill is able to do so. The problem with the model is that it operates in the reverse way that the Productivity Commission envisaged, he said. The Productivity Commission proposed a quality filter, which ultimately led to the top 10 best-in-show funds and got rid of poor-performing funds, and members therefore are only stapled to Continued on page 4
Wholesale funds recover losses Wholesale funds finished 2020 with funds under management (FUM) down just 0.1%, recovering almost all the losses experienced as a result of COVID-19, new research from Plan For Life shows. The research revealed wholesale funds grew 5.4% in the December quarter to finish 2020 at $1.2 trillion. Pendal and Challenger led the FUM growth with 39.5% and 20.5% respectively. On the other end of the spectrum NAB/MLC recorded a 15.6% loss and Vanguard fell 9.4%. State Street Global Advisors recorded 4.9% FUM growth followed by Victoria Funds Management (2.4%) and First Sentier Investors recording a slight decrease (2.8%). “While initially in 2020 stock markets worldwide experienced significant COVID-19 triggered corrections they subsequently recovered and have continued to climb higher into the first quarter of 2021,” Plan For Life analysis said. “However, despite the start of vaccination Continued on page 4