Grandfathered commissions bigger impact than COVID-19

12 May 2020

The banning of grandfathered trail commissions has had a bigger impact on the value of financial planning practices than the COVID-19 pandemic, according to Radar Results.

The financial services mergers and acquisition firm’s latest price guide said the banned commissions had impacted as much as 25% of the recurring revenue from some practices disappearing.

In terms of COVID-19 impact, some practice revenues were down between 5% and 20%, depending on clients’ exposure to shares.

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Radar noted that price multiples being paid for financial planning practices had softened due to the attitude of buyers in the current environment.

“Another factor that has lowered planning practices values is the number of sellers compared to buyers. It's a buyers market and has been that way now for about 18 months,” it said.

“There have been thousands of planners either sacked, told to move to another licensee or given a buyer of last resort (BOLR).”

“Further, many don't wish to do the Financial Adviser Standards and Ethics Authority (FASEA) exam, and certainly, they don't want to commence a four-year university course.”

Radar said what was in demand were accounting practices, self-managed superannuation fund administration fees that were selling for around $1.50 per $1.00, and general insurance registers or businesses.

Recurring revenue changes

Figures based on market activity over the past eight months to May 2020.

Source: Radar Report

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