Book sales have increased dramatically over the last financial year as advisers change their business models in response to reform as well as disenchantment with dealer groups, fund managers and researchers, according to Kenyon Prendeville.
Kenyon Prendeville co-founder, Alan Kenyon, said there had been significant rethinking of business models as the global financial crisis led advisers to question researchers, dealer groups and fund managers along with the high cost of platforms.
“When planners are under the pump and their revenues have been hit, they’ve got to examine all facets of their business,” he said. “There’s a lot of disenchantment out there with various dealer groups, fund managers and researchers. All of those things come into question because at the end of the day the adviser is the only person that the client holds responsible, rightly or wrongly.”
Kenyon said advisers were not only looking for partners to share benefits like technology, but they were also keeping an eye on how they could participate in the whole value chain.
“New technology allows them in different ways to participate more in that value chain, and in essence reduce the cost to clients, and maintain and enhance their revenues,” he said.
However, uncertainty about regulatory reform is holding smaller businesses back.
“Any major changes to a small business can be costly, both from the point of view of time and money,” he said. “So there’s a whole buzz in the industry about exchanging information, evaluating what others are doing and trying to adapt and adopt the best of what’s around to suit their particular client base.”
Businesses that have proactively changed their business models are shedding their C and D clients. Kenyon said they have seen an 80 per cent increase in book sales in the last year, a trend that he expected would continue for some time.
Kenyon conceded that there had been some questioning about whether legacy business would in fact retain its value, but he was of the view that grandfathering provisions in the reforms package, such as the ‘opt in’ for continuing advice reform, could possibly make books of business more valuable.
“However, the value ascribed to these businesses will depend very much on the quality of the information that a vendor provides, and the segmentation of both the clients and products,” he said, adding that buyers were much more discerning.
Looking at the demand for practices in general, Kenyon said increased supply has not outweighed demand, which remained high.
Kenyon Prendeville has found that in the last financial year on average regional businesses were sold on a multiple of recurring revenue of 3.25 times and metropolitan businesses around 3.5 times. Multiples achieved in each state and on a national basis were slightly less on average than subsequent years, which reflected the impact of rising interest rates, legislative uncertainty and difficult trading conditions, the firm stated.
