How could regulatory changes impact the valuation of advice practices?

Centurion Market Makers’ 2025 Advice Practice Acquisition, Sale and Valuation Guide said the ongoing regulatory changes of the last 10 years have led to a “severe” reduction in the profitability of clients at the lower end of the fee range.

As overall advice fees have risen, alongside operating costs, clients on a fee structure under $3,000 per annum have fallen to below two times revenue – that is if they can be sold at all.

“The exception being if an acquirer believes fees can be increased for those clients, the clients have the capacity to pay, and the vendor agrees to assist the acquirer to reprice those clients,” the report said.

In order to counteract this, vendors need to focus on profitable client relationships and repricing low-fee clients or removing unprofitable clients who are unlikely to become profitable later.

The report also noted the importance of being able to demonstrate profit history and solid data to underpin new client acquisition history and sources, while also fostering a client value proposition that is transferable to ease the transition to the acquiring business.

When it comes to buyers, the report explained that they have become “more discerning, with an even greater focus on profit”.

As such, in addition to the fees charged, the location of clients is also having a considerable impact on the perceived value from prospective buyers with CBD-based clients fetching up to three times their recurring revenue.

Meanwhile, regional clients continue to achieve a lower price due to the lack of competition for their services.

However, Centurion suggested that vendors should avoid one-on-one transactions, opting instead to position the business as “for sale”, with information regarding the value of the business to increase competition and drive higher value perception.

An example of this is currently taking place as CC Capital, Bain and Brookfield Capital Partners (UK) continue their bidding war for Insignia, with the bidding initially starting out at $4 per share in December to offers now reaching $4.60 per share.

Looking to the future, with tranche two of the Delivering Better Financial Outcomes reforms expected to improve practice efficiency considerably, Centurion suggested that the resulting improved profit margins for practices could impact valuation.