With a large group of advisers expecting to exit before the 2026 education deadline, an industry expert shares how these practices can best prepare themselves for sale to compete in a “buyer’s market”.
According to The Hidden Value report released by CFS 10x last month, some 34 per cent of advice business owners plan on exiting the profession in the next five years, while the Financial Advice Association Australia (FAAA) is estimating that around 1,000 advisers may exit at the end of this year due to the looming 1 January 2026 education deadline.
Considering this, Peter Fysh, principal of Financial Planning and Succession, told Money Management that the advice space is currently “a buyer’s market”, with the increased supply expected in the coming year unlikely to make it easier for businesses looking to sell.
“There’s plenty of businesses looking to do acquisitions, so they will be selective in what they want,” Fysh said.
He added buyers are “more discerning” nowadays, with lower-revenue-generating clients offering little or no value for a buyer.
For those who are considering a sale of their practice before the education deadline, he said, “they need to start on it, if not already, very soon”.
“The issue will be – assuming that the numbers are correct with the advisers leaving – buyers will be selective. If your business is in good shape and has good systems, that will be appealing. If it’s not in good shape, it’s going to be less attractive, so that’s the challenge,” he said.
Despite so many expected to exit the profession in the coming years, Adviser Ratings 2024 Landscape Report found that 40 per cent of advice firms had not nominated a successor, arguing they don’t need one, while a further 30 per cent said they did need a successor, but were yet to begin the search.
How to prepare for a sale
When it comes to planning their exit, Fysh said the number one thing businesses need to consider is whether they are “fit for sale”.
“Do they have good systems in place, client management systems, compliance is obviously important. So that needs to be done as that’ll come under scrutiny when the due diligence is completed by a prospective buyer,” he said.
“My experience is that many businesses aren’t necessarily fit for sale right now, but there’s time to implement and get things done to make it look as attractive as it should be.”
As many started out as a sole practitioner and grew a business from there, Fysh said it is important to be mindful of key person dependency risk, as some struggle to relinquish non-advice responsibilities, which can negatively impact valuation.
Notably, the CFS report revealed that almost half (47 per cent) of respondents believe their business couldn’t operate effectively without the owner.
Beyond that, Fysh suggested businesses also need to consider how a sale could impact staff and whether they intend to stay on under new management or go elsewhere.
This could mean exploring potential staff equity arrangements for smaller businesses to conduct an internal sale, though he noted that internal sales are typically not an option for larger firms, as the value and cost are likely to be too high.
However, according to Fysh, engaging with staff is sometimes a step where practices fall short.
“At some point in time, they need to engage with their staff, to bring them on, get them on the same page and that way it will be a big plus when it does come to the final decision or agreement, if you like, to sell the business to another party,” he said.
When it comes to exploring potential buyers, Fysh emphasised the importance of ensuring they are a “cultural fit”, sharing similar business strategies, investment styles, technology usage, and client demographics.
“If that cultural element is correctly addressed, then it is almost assured that the succession will be a good outcome,” he said.
While it is easy for businesses to put off succession planning as they struggle to manage the mounting compliance obligations, Fysh suggested it is worth taking time to address this.
“If you’ve built a business over 20 – if not 30 – years, you want to leave a legacy that will continue on after you’ve retired,” he said.
