Using bank finance to grow a financial planning practice has fallen significantly over the past year relative to using finance for succession planning, even while loans to planners are increasing, according to the National Australia Bank.
An informal survey of its financial planner banking division’s transactions over the past five years has found a “significant swing” over the past 12 months away from practice growth as a motivation for planners to take out bank finance.
National manager Malcolm Arnold said the survey found seven out of 10 transactions were “previously aimed at pursuing growth in an existing practice, but this has changed significantly in the last year or so”.
“I would say about half of the businesses that come to us now are wanting bank finance for succession needs, often involving the direct financing of young, new equity partners in the business.
“In fact, it could actually be argued that all financing sought by financial planning businesses currently relates in some way to an underlying succession strategy.
“This is because even in cases where finance is sought to acquire another business, this finance will ultimately create a more valuable practice that becomes a more saleable asset at some stage down the track.”
Overall, the survey suggests financial planning business owners are becoming increasingly strategic in their day-to-day practice management, and this is a sign of the growing maturity of the industry, Arnold said.
“There was previously a tendency for the owner to spend a great deal of time working ‘in’ the business, as in advising clients, but they are now dedicating more and more time to working ‘on’ the business.”
This trend is also occurring both within independently-owned financial planning practices and within businesses licensed to the large dealer group, he said.
“Being aligned to a reputable licensee provides real advantages to a planning practice, but the really successful businesses do not simply rely on the support of their licensee.”
The survey also suggests “owners of successful businesses are spending more and more time understanding the key drivers within their business”, Arnold said.
“This includes having an intimate knowledge of what creates value within their practice and what the key revenue sources are and who the key clients are, and then appropriately segmenting their client base.”
Successful business owners are also increasingly aware of the need to dilute the level of dependence on key individuals within the business, he said.
