If you have a growth strategy that includes acquisition you should read this story. In a post Royal Commission era, buyers have to be aware of how the structural changes in our Industry over recent years has produced additional issues for buyers to consider.

We are assisting one of our financial planners who is looking to further build his business via an acquisition. Our Principal has no previous experience in acquisitions and has asked us for assistance. Our management team has many years of experience in this area.

A client base opportunity has been presented for sale. In this case the financial planner is exiting the Industry. What is being offered for sale is the client base only. The current owner outsources all support functions. There are no other staff.

It is interesting to note the background of the client base. The business is a mature one with most clients having been on board for many years. The business origins started with an insurance focus and transitioned into comprehensive financial planning about 25 years ago. Like many mature businesses from this background, the client base could be segmented into the following categories:

  • Fee for service
  • Insurance trail
  • Investment/superannuation business (Grandfathered trail)

Some of the issues identified with this client base are:

  • Fee for service clients represent quite a low % of the total. In this case approximately only 20% of total client numbers.
  • Grandfathered commissions – with the loss of grandfathered commissions this year it is interesting to note there has been minimal transition of these clients to a fee for service model. This is a lost opportunity for the seller, and a very challenging exercise for a buyer unknown to these clients.
  • Age of clients – the average age is mid 60’s with little evidence of new clients in recent years. This is a concern as it does not indicate referral activity from the existing clients.
  • Pension clients represent 80% of the fee for service segment with a higher average age. This group does not represent a lot of new advice opportunity.
  • Risk revenue – with a high average age and Insurers adopting some hefty premium increases, lapses are on the increase which decreases the value of this segment.
  • Lack of new clients (no client referrals)

Overall, this client base does not represent a good acquisition opportunity and will be difficult for the seller to secure a good price because of the above issues.

This are some clear lessons for others who may be considering exiting the Industry.

Clearly you must work on your business to mitigate the Industry changes that have decreased “old world valuations”. Time to build a “new world” business. Creating a clear value proposition and fee for service model is paramount and will build value for both your clients and you as business owner.  

Management at Futuro have a track record of helping business owners build good businesses.

We will ask that you work with our business coach to set the strategic plan and how you will drive the value in your business. This support will be ongoing. You shall benefit from support every step of the way in the process of developing your business.

To have a conversation about the value drivers in your business and how to set up a plan to optimise your business growth, please call us on 07 3018 0400 or email info@futuro.com.au