Guardian Advice (Guardian) is doing away with buyer of last resort (BOLR) arrangements and will sign up new businesses under buyout facilities based on market value as set out by an independent valuer rather than the traditional recurring revenue model.
The shift to practice buyout facilities (PBF) from BOLR, outside of honouring existing arrangements, is part of Guardian’s revised strategy for expanding its adviser network.
The strategy includes financing arranged through its ultimate parent Suncorp, and, from 2012, equity participation.
“We’ve got some grandfathered BOLR arrangements and we’re working through those with some of our retiring advisers – working through those BOLRs as we speak,” Harris said, but declined to give details.
Harris said the BOLR measure was sometimes actually used by businesses within the Guardian network.
“With the market volatility combined with regulatory uncertainty around FOFA [Future of Financial Advice], BOLRs are being enacted,” he said.
“We see that as a great opportunity for Guardian to access some very good businesses that we can then use to either recruit new practices to Guardian or bolster some of our existing practices.”
The buyout overhaul is part of Guardian’s plan to expand its ranks to aims to expand ranks to 200 in three years, from its current 145 advisers across 79 practices.
However the phasing out of BOLR signals a shift dogging the advice industry as profound regulatory change looms.
The uncertainty around the government’s FOFA reforms has pressured prevailing practice valuations.
Before the global financial crisis, financial planning practices were selling for 3.8 to 4.0 times recurring revenue, but since the crisis battered revenues and slowed business from new clients, the multiple has fallen to about 3.1 times.
Guardian’s PBF would base a sale price on market value as determined by an independent valuations expert, Harris said.
Asked what might happen if a potential seller was unhappy with the expert’s price, Harris said Australians were underinsured and underadvised, signalling massive potential for growth.
“There’s still tremendous potential in this industry,” he said.
“Market forces will still dictate valuation models.”
