Risk clients most valuable
Risk clients appear to be more valuable than any other client segment serviced by financial planners, according to latest figures released by business brokerage firm Radar Results.
Radar Results released an indication of financial planning practice prices as at March 2013, which show books of risk clients under the age of 50 can sell for as much as 3.8 times recurring revenue.
This is more than any other client segment, including accumulator investment client books, which sell for maximum of 3 times recurring revenue.
According to principal John Birt, the most popular level of recurring revenue that went up for sale in the last six months was below $100,000 (19 per cent of all sellers), followed by the $100,000-$200,000 bracket.
However in total, more than half of all sellers had recurring revenue between $200,000 and $1 million.
"In summary, the majority of planners only want to buy a practice or client register that has under $500,000 of recurring revenue, with an emphasis on less than $200,000; whereas, in reality, there are many more sellers with practices for sale that have in excess of $500,000 recurring revenue," Birt said.
The price of C and D client books has slightly risen since September 2012 on the back of buyers' demand, Birt said, while mortgage client multiples have fallen due to banks cutting many forms of revenue which brokers had previously received.
"When a practice which is selling has a total revenue of at least $1 million, an EBIT [earnings before income tax] multiple can be applied to its valuation," Birt added. "These multiples have remained steady since the global financial crisis ended four years ago and can vary from four times to seven times, depending on the practice.
"More commonly, an EBIT range is between 4.5 times and 6 times," Birt added.
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