Advice business valuations on the rise

According to Radar Results, there have been increases of 6 per cent and 11 per cent in the last 12 months depending on the type of business, adding that the rise is independent of higher interest rates and inflation.

“Since our last Price Guide in June 2022, a year ago, we have seen transactions of financial planning businesses, financial planning client registers, accounting practices, loan mortgage trail books, and SMSF administration fees increase,” Radar Results chief executive John Birt said.

“The last 80 sale transactions we have been involved with over 12 months show evidence of higher prices being paid,” he added.

“I’m unsure where prices are heading with an economic downturn worldwide, possibly having unstable outcomes. Financial planning client businesses, mortgage businesses, and accounting practices tend to shield themselves from adverse trends and show a positive return on the investment made by our buyers.”

Radar Results’ numbers show that multiples of recurring revenue for investment and super clients have grown in all but the over 80 age group.

Investment and super clients aged up to 64 years have multiples of 2.3–3.0 times revenue, up from 2.2–2.8 times, while ages 65-79 years are at 1.9–2.5 times revenue, up from 1.7–2.3 times. Investment and super clients aged 80 years and over saw multiples steady at 0.8 times to 1.0 times revenue.

Risk clients aged 55 to 60 years also saw increased multiples, up to 2.1–2.5 times revenue from 2.0–2.3 times last year. Risk clients over 61 were steady at 1.0–1.5 times revenue.

Mr Birt said that multiples can vary depending on the terms the vendor offers to the purchaser when selling, the location of the vendor’s clients, the client’s ages, funds under management or administration, and the investment products recommended.

Unsurprisingly, the multiples of recurring revenue get higher as client fees increase, however, the higher end of fees was also the only segment to see an increase in multiples year-on-year.

Multiples for investment and super clients with fees over $4,000 a year increased to 2.7–3.5 times revenue, up from 2.6–3.3 times. The same was true for risk clients with fees over $4,000 a year, up to 2.6–3.5 times revenue from 2.6–3.3 times last year.

“The account balances of each client are essential with the fee-for-service charge. The most requested clients are those paying fees between $3,000 to $6,000 per annum with reasonably high account balances,” Mr Birt said.

“These clients, therefore, command the higher multiple. Multiples paid for risk books or insurance-revenue-based practices will depend on the client’s occupation, age, premium size, policy type, and geographic location of the clients.”