How the FASEA standards have impacted practice sales

The latest data from financial planning business brokers Growth Focus suggests that leaving the industry to pursue other pursuits is now the second most common reason for a business sale in the industry, behind retirement.

The broking group said leaving the industry had replaced succession as the second-top reason for selling a business, suggesting many sellers were making a quick exit following the FASEA standards coming into force.

The data echoes recent statistics quoted in ASIC’s CP 332 paper around affordable advice access, which indicated adviser numbers had fallen 14 per cent below their long-term average since 1 January 2019, when the FASEA standards were implemented.

Growth Focus said industry exits had become increasingly common over the past 15 months among business principals looking to sell, and that such exits were more common among smaller businesses who were not able to remain in the industry without being FASEA compliant.

“Some senior managing directors have indicated to us that although they themselves are not going through the education program, they are in a position due to the size of their business to effectively manage the business without providing direct advice themselves,” the group said. 

“It’s logical for small practices to leave the industry, as they are not as equipped to handle industry changes, from education standards and licensing fees to compliance requirements and insurances.”

The group said small business owners were also less likely to have properly considered succession, meaning they were more vulnerable to unforeseen issues such as illness or financial stress.

“There is very little succession in smaller practices. While succession is a common reason for sales in larger businesses, it’s simply not part of the small business mindset,” Growth Focus said.

“Illness is a key trigger for sole owners because there is no one able to take up the reins, resulting in more pressure to act decisively about a sale. The same thing applies when the single owner is under financial duress. The data also shows that succession is more prevalent in partnerships over single owners; and large businesses over small operators.”