As the ageing owners of financial advice businesses seek to leave, younger advisers are looking to buy a fee base, but a major bank has warned this can also be the demise of the buyer's existing business.
National Australia Bank national manager financial planner banking Daniel Lowinger said "with the ageing demographic of business owners within the financial planning industry there are increased opportunities to purchase the fee base of a planner looking to exit as part of their succession plan".
"However, caution needs to be applied, as lack of preparation and understanding of what you would like to achieve can be costly, time-consuming and distracting for the business," Lowinger said.
The most important question was whether an acquisition would add value to the business, particularly if debt was taken on to fund the purchase.
The acquisition strategy should then be incorporated into the business plan and identify the reasons for acquisition as well as the initiatives and resources required to successfully integrate it into the existing business.
The two entities had to be a neat fit "including compatibility in service, personnel, company culture and reputation right through to IT systems and company premises", he said.
Due diligence on the business or client base was essential, focussing on client demographics, segmentation, and the ability of the business to both manage and grow the client base.
"In addition, analysis should be done around the potential effects that FOFA [Future of Financial Advice] may have on the acquisition. Appropriate discounting of the purchase price needs to be applied to take into account any concerns you may have with the sustainability of the revenue streams," he said.
Lowinger said professional advice should be sought from the buyer's dealer group, lawyer, accountant or banker.
"Having professionals who specialise in acquisitions will help ensure that you identify risks early on and address the major risks including the likelihood of a percentage of clients leaving as a result of the acquisition or a vendor poaching some clients subsequent to the sale taking place," he said.
"A lot of these issues will be tackled in the initial 'heads of agreement' and then ultimately the final contract of sale."
The acquisition strategy must be discussed with financiers to ensure "no surprises down the track" in the approval process. Financiers generally required that loans be repaid over 10 years.
