FOFA erodes practice values

The Federal Government’s Future of Financial Advice (FOFA) announcement has already had an impact on the valuation of planning practices, according to Radar Results.

The company said its valuers had reduced earnings before interest and tax (EBIT) multiples by 0.5 times since the FOFA announcement, equating to a reduction of approximately 10 per cent of a practice’s value.

Commenting on the situation, Radar Results principal Michael Birt said valuations depended on the style of the planning business, the products used, the client ages and, in particular, their current fee arrangements.

Giving his own analysis, Birt said a concern he had with FOFA was the proposal for a two-year opt-in, but of greater concern was the Government’s inability to outline a definite grandfathering arrangement.

“Grandfathering has been presumed by most advisers to be automatic, however, Shorten’s recent statement that ‘issues around grandfathering arrangements will still be subject to further consultation’ is certainly not what planners wanted to hear,” he said.

“The question is whether life insurance agents, who have been building up client registers for many years, may have a part of their register rendered useless,” Birt said. “Certainly, retail risk policies written inside a personal super plan seem to be in the firing line.”