3 things to consider when buying or selling an advice practice

I recently had the opportunity to host a CFS 10X webinar and discuss the ins and outs of M&A with a handful of distinguished industry leaders who offered unique insights into the dynamic deal-making trajectory of Australia’s financial advice market.

Together, we explored the key trends shaping the valuations of financial advice practices.

1. Investor demand is strong

David Haintz knows a thing or two about scaling an advice business and positioning it for sale. As one of the founders of Shadforth Financial Group, he was instrumental in growing the business and ultimately selling it for $670 million in 2014.

Today, as partner with Merchant, he is on the hunt for young, entrepreneurial, and ambitious advice businesses seeking an expansion capital partner.

David says that Merchant is looking to take minority equity positions, ranging from 20–25 per cent, in up to 12 Australian firms – a clear signal of their confidence in the future of our industry.

Yasemin Onat of AZ NGA echoed this sentiment, highlighting the high demand from strategic investors for Australian financial advice firms that are future-proofed and primed for growth. With AZ NGA itself investing in 81 stakes ranging from 20–100 per cent in the last five years.

Several factors are contributing to this surge in investor interest. The financial advice industry in Australia is undergoing a period of significant consolidation, with smaller firms increasingly recognising the benefits of joining forces with larger groups. This consolidation creates economies of scale, allowing firms to invest in technology, compliance, and marketing resources that would be cost-prohibitive for them to develop independently.

Investors are also attracted to the recurring revenue model that financial advice businesses typically offer. With a strong client base, established firms can provide a predictable and reliable stream of income, making them highly attractive investment propositions.

2. Retiring advisers are a prime acquisition target

A key driver of M&A activity is the growing number of retiring advisers. Many local firms, like FMD Financials and Smart Financial, have identified this trend as a strategic opportunity for growth through acquisitions. By acquiring the businesses of retiring advisers, these firms can seamlessly absorb valuable client bases and experienced personnel.

The experience and established client relationships retiring advisers bring to the table are invaluable assets. Acquisitions provide a smooth transition for clients, who can continue to receive trusted financial advice from a familiar firm.

These trends, combined with a healthy dose of optimism regarding upcoming regulatory reforms, have created a perfect storm for growth in the Australian financial advice sector.

This is an exciting time for the advice industry. We are witnessing a well-balanced market where established advisers are looking to strategically exit, while ambitious firms are eager to expand. There’s also a significant amount of capital readily available to fuel this growth, making it an opportune time for aspiring practices to take their businesses to the next level.

3. Careful planning and legal advice are essential

It’s important to acknowledge that M&A activity is not without its challenges. Merging two financial advice businesses can be complex, requiring careful planning and execution to ensure a smooth integration. Cultural alignment, operational compatibility, and adviser remuneration structures are all crucial aspects that need to be addressed during the M&A process.

Seeking legal advice is essential when navigating the complexities of M&A transactions. Ask plenty of questions, no matter how basic they may seem. Lawyers have a wealth of experience and have encountered many intricacies during the M&A process. In fact, our panellists shared stories of advisers reaching the final stages of a deal only to discover they aren’t even acquiring a business – just a book of clients!

Engaging specialists in M&A transactions for the financial advice sector can help you avoid such pitfalls and ensure a successful outcome.

Fortunately, you don’t have to look far for expert guidance. Two lawyers who specialise in this area are Cristean Yazbeck of Hamilton Blackstone Lawyers and JNP Legal’s Natalie Isborn. They can help you navigate the legal complexities of buying or selling a financial advice practice.

Whether you’re a growth-oriented firm or considering succession planning, the current market conditions present a unique opportunity to leverage the strong appetite for Australian financial advice businesses.

Chris Mather, executive director new business, Colonial First State.