Cover aids succession planning

Kenyon Prendeville has announced the launch of an insurance policy which will ensure buyers of financial planning practices do not default on instalment payments.

The policy will be backed by a European insurer and Kenyon Prendeville director Stephen Prendeville said it is a first for Australia.

“Many sellers of practices are concerned about young buyers defaulting with instalment payments for the business,” he said.

“As a result, they are going for trade sales rather than take the risk of succession sales.”

Prendeville said if the purchase price was $1 million spread out over five years, then the insurance policy would cover $800,000 of that payment if the buyer defaults.

The premium for the policy would be about 3.5 per cent of the outstanding amount.

“We have spent 10 months researching this type of policy and we have achieved an exclusive agreement with the insurer,” he said.

At present, Prendeville is not naming the insurer of the policy as it will be marketed in Australia as a Kenyon Prendeville product, in the same way as the consultancy firms offers its equity finance product.

Prendeville expects many principals looking to sell their practices will again look at succession planning, rather than trade sales, as the risk is reduced with the new insurance.

“Often the senior adviser looking at taking over a practice has funding difficulties with a large mortgage on their home and children to raise,” he says.

“The seller saw succession planning fraught with danger and a risk as to whether they would be fully paid.”

Prendeville is predicting that, with a population of ageing principals, 50 per cent of practices will change hands in the next five years.