Exodus myth drives practice sales to record lows

Addressing the AIOFP’s recent virtual conference, Forte Asset Solutions’ Steve Prendeville said while over 5,000 advisers had left the sector in the last year and a half according to industry data, the bulk of these exits was made up of salaried advisers with no business books to sell.

“What should be remembered is [the exodus] is largely represented by salaried advisers from banks, accountants who can’t operate with the exclusions and smaller businesses being forced out from many dealer groups’ perspective,” Mr Prendeville said. 

“It hasn’t translated into a large number of sellers – these are very small businesses or no businesses represented by exit levels.”

He added that the exodus “myth”, combined with the economic turmoil created by COVID-19, was creating an undersupply of practices on the market.

“It’s also the lowest [supply] level in my 17 years of selling that I’ve ever seen, and it’s largely based on the myth that there has been a flood of businesses coming to market,” Mr Prendeville said. 

“It’s also a situation where many people have got enough on their plate than to go through a sale. The gap between demand and supply is significant – I would normally be representing 10 to 12 businesses at this time of year, and at the moment I’ve got three and another three or four coming on.”

However Mr Prendeville said unlike the crisis created by major reforms such as the FASEA regime in recent years, the COVID-19 pandemic was having a net positive effect on the advice industry long-term, with some practices able to boost their earnings by hundreds of thousands of dollars by embracing remote work and increased technology use.

“We’re going to see significant improvements to client benefits, the adoption of SMAs, a move to fixed fees, the adoption of technology and businesses that are focusing on specific target markets and integrated CRM systems,” he said. 

“The crisis has also been enabling a greater level of communication – we’re having multiple service relationships that are not just principal dependent, we’ve got greater levels of communication, clear value propositions going forward and a reduction of key person risk.”