Advisers warned to act now on business sales

Radar Results chief executive John Birt said the current supply of insurance client books in particular was “way down” on normal levels, indicating many risk advisers were waiting until the last minute to sell off their business and the number of books for sale would increase “alarmingly” over the next nine months.

“We usually have up to 150 life insurance books, financial planning businesses and accounting practices for sale, but with a record number of sales over the past year, stocks are way down,” Mr Birt said.

“Many financial planners will bypass the FASEA exam and either retire or move into another industry. For the time being, they are holding onto their books for the income.”

Mr Birt said while this was an understandable strategy, advisers could likely achieve a better sale price by putting their client books on the market now rather than waiting until the end of 2021, when they would be competing with a flood of other retiring planners.

He added that for life insurance books, which were most in demand at the moment due to supply shortages, a mix of client age, occupation and product type would determine the multiples paid.

“Which multiple applies to your risk insurance book depends on many factors, but the clients' age in relation to their policy and the premium cost is the key factor”, Mr Birt said.

“Clients under 55 years of age can attract up to 2.7 times [recurring revenue], but other factors need to be present to achieve this multiple. The payment terms offered to a buyer when selling, the location of the clients, the products recommended, the occupation of the clients and the size of the premiums are all additional factors that need to be considered.

“Risk insurance clients with professional occupations, working in the city and paying premiums of $5,000 to $10,000 per annum would command the highest multiple.”

Despite challenges in the risk market over the past few years, Mr Birt said life insurance client books were still highly sought-after as they were less vulnerable to market declines and not as time-consuming from a compliance perspective.

“Any stock market falls do not impact a risk insurance book at all. No fee disclosure statements opt-in agreements need to be sought, and no SOAs are required with the on-boarding of the risk insurance clients from one licensee to another,” he said.

“It makes the purchase and transitioning of the risk insurance clients simpler and easier than buying investment-based funds under management-styled businesses – which are [also] in short supply.”