Why are advisers holding off selling up?

There is expected to be increased merger activity in adviser businesses within the sub-$500,000 revenue sector, according to Forte Asset Solutions.

In a report on the adviser landscape, Forte said there was high demand from sellers but low volumes of advisers looking to sell up, despite the reported adviser exodus which had seen adviser numbers fall below 17,000.

There was also a reluctance to grow the business, not helped by advisers’ mental health struggles, and those businesses which were in the mindset to grow their businesses were Gen-X owners who were willing to invest in technology and simplify processes.

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It said: “There is a need for size and scale to maintain or grow profitability. The largest sector of our profession is the sub-$500,000 revenue business and they do not have the balance sheet to absorb the cost increases and often reluctant to pass on costs to their clients. We expect to see a lot more M&A activity in this sector”.

Forte gave several reasons for the low supply:

  • An incorrect assumption of oversupply from the adviser exodus and therefore a significant reduction of value;
  • Waiting to be confident that clients and revenue were secure following a long period of regulatory and business upheaval;
  • Businesses were still in transition regarding annual renewal fees for platforms;
  • Many businesses were rebuilding revenue streams from the cessation of grandfathered revenue;
  • Principals were not in the right headspace to contemplate a sale and had deferred their retirement; and
  • Businesses felt unable to take on high volumes of new clients as they were too busy , meaning they were unable to demonstrate growth to a seller.

“Mega industry funds are being created but the advice industry is now circa 60% independent with committed professionals representing and directing the course of our future. The sausage factories of homogenous large-scale advice have been shut down and we now see the rise of super boutiques ($1 billion+), open approved product lists (APLs), better client engagement tools, rising consumer demand and the consumers’ best interest front and centre in all decision making.”




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spot on Laura!

Spot on Laura. You mean the sales pitch from Prendeville?

An excellent overview featuring common sense and a realistic understand of what is now and more importantly, what is coming. The shift means that in five years time, the industry will be very different at both the adviser and the AFSL level. The concept of ASIC removing the licensee and moving to individual and direct licensing of advisers will happen without political intervention via stupid over-regulation and cost margins changing the world as we know it. Are you ready?

Maybe it's time to revisit the whole "growth" mantra. Business growth has always been pushed by dealer groups as the primary objective for smaller practices. That's because it generates more inhouse product sales for the dealer group, and ultimately dealer groups exist to facilitate inhouse product sales. But does practice growth generate significantly more profit or contentment for the practice owner? Or does it just generate a lot more work and stress with marginal financial benefit?

With more and more advisers freeing themselves from the clutches of dealer groups, many are starting to question whether they want or need to be so heavily focused on growth.

You nailed it. Growth was never about us, it was bonuses up the line. We're not chasing growth, profitability and client satisfaction have never been higher in 3 decades.

I can see a future where advice businesses in this fee bracket setup like a medical practice. They run standalone businesses but share fixed overheads, this will especially be the case if the AFSL regime is abolished. It would free up movement of advisers to pay for services they need, not what the AFSL demands of them

This is something I am doing now (sharing the AFSL/Xplan etc costs with 2 other sole practitioner FP businesses) and it works well

That’s really great to hear it’s working for you. It’s a model I’m considering for my AFSL. Not creating a dealer group, or trying to get massive, just a resource sharing opportunity to bring good firms into the group, and offer some succession planning for retiring planners by getting the transition work done 3-5 years out while they are still advising. Then slowly introduce our planners to the clients and then funding them out.

Except when one of the group, that you have no real control over, has an issue that involves a major compliance breach (even if it is inadvertently done) or else their advice comes under ASIC scrutiny and you all have to pay up as part of the AFSL. Especially tough bickies if it is a legacy issue that includes remediation payments to a large number of their clients over many years that has to be paid, as we've all seen with the larger AFSLs setting a precedence. And no, a contractual agreement between the 3 parties means nothing from ASIC's perspective, especially if that third cost sharing business decides to go into administration rather than pay remediation, fines and substantial ASIC costs.

And even if you manage to limp through that, what about the resulting PI issue at renewal time, even though in reality it had nothing to do with your own planning firm?

If any aspect of your AFSL is not within your complete control, and I don't mean monthly meetings or the sharing of ideas around SOA inclusions or the 6 monthly peer reviews even if you have an external compliance group engaged, then you have inter-party risk it is a major one to everything you have built up over the years, pure and simple

Better to pay the cost of running your own AFSL, free and clear.

Indeed. A shared services model can potentially work well in financial planning as it does in other fields. But a shared AFSL via ARs or CARs is fraught with danger for all involved. The "Authorised Representative" concept never should have been part of the licensing model. If abandoning AFSLs is a step too far for regulatory reform, then a good interim step would be to get rid of ARs and CARs so that all advisers are required to get their own AFSL or be direct employees of an AFSL holder.

Yep... great article. I went down that list and pretty much ticked all those boxes in relation to why I haven't sold. LOL

Having remained in the business, I do feel rather positive moving forward, although that can be remedied by the new government pretty quickly.

The stark truth is that many ,many advisers are mentally shattered, burnt out and scared.
Many are currently mentally incapable of arranging, negotiating and transacting an exit strategy in their best interests as they are simply focussing on surviving the current unworkable and debilitating regulatory environment.
I am certain that if a large number of the remaining older advisers could negotiate a beneficial exit in a reasonable time frame they would do so in a heartbeat.
There are only so many layers an individual can endure until the weight of those layers become overwhelming, negative and highly impactful to an individuals well being.
It is a toxic and highly unsavoury environment in which to be in and the widespread impact of relentless pursuit, persecution and soul destroying attack on self confidence, self image and sadly, self worth has been nothing more than disgraceful.
The human cost has been significant and one which may never allow the industry to recover to an efficient level for many years to come.
It has been a Govt sanctioned, orchestrated and deliberate dismantling of an industry and the Liberal Govt has been complicit and negligent in their support and protection of the value quality financial advice and quality financial advisers deliver to the Australian public.

Take care of yourself Experienced. It's not worth getting to the finish line with years taken off your life from stress and poor lifestyle.

I think you hit the nail on the head. The elephant in the room is that a business sale would typically trigger a look-back of sorts, which would strike fear into the hearts of many financial planners who would like to exit. Kicking the can down the road a few more years is a more sensible solution for many when you think about it. I'm just guessing here, but I think this is what is happening.

The main reason there are not a lot of businesses up for sale is that most sell within the licensee or to other advisers without officially entering the market. Plenty of businesses changing hands just not through Forte.

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