FPA Dealer Principal Conference – Exit plan adds value
The difference in valuation between an average financial planning business and a premium business can vary by up to $370,000 depending on a number of factors, says MGI Meyrick Webster senior partner Bob Neill.
His accountancy practice has recently valued a number of financial planning firms to allow succession plans to come into force.
"We see a lot of small, fragmented businesses that have strong goodwill based on an individual," he says.
When his practice values planning firms, it looks at turnover, profit and capital base, the same principles for valuing any firm.
The differences with planning firms are factors such as geographical location, business structure, funds under management and brand names.
"If the business has a managed style that ensures procedures are repeatable and transparent, then we have a marketable business," Neill says.
"And if we have a turnkey operation, the business is a significantly more valuable asset."
A growing threat to financial planning practice valuations is litigation. Neill admits that industry regulations are making the planner more liable and litigation is inevitable in the future.
Other factors affecting the valuation include client demographics, income streams and the fact that fees are better than commissions. Automation of the practice leads to more efficiency and the staff is also considered.
Neill quoted a case study of an average financial planning firm with a turnover of $1 million and $300,000 profits. The practice had $75 million of funds under administration.
The value range of this business would be between $1.296 million and $1.386 million.
If the same figures were applied to a premium financial planning firm, the value would be between $1.665 million and $1.758 million.
To achieve the higher valuation Neill recommends principals start thinking about the method of disposing of the company four to five years ahead.
"This timescale will allow the principal to achieve their valuation goal through understanding the factors that influence the value of the practice," he says.
Recommended for you
More than 25 winners have been announced at the second annual Australian Wealth Management Awards.
A former financial adviser has been extradited from New Zealand after being alleged to have misappropriated $4.1 million from 13 clients.
Adviser numbers have continued the winning streak for the 2025–26 financial year with the seventh consecutive week in the green, buoyed by a steady flow of new entrants.
Netwealth chief executive Matt Heine has explained the platform is focused on accelerating its share of the affluent advice market as its NPAT reaches $116 million.
