Practice owners who are not beginning the transition to a fee-for-service model should consider selling their commission-based clients should they want to attract the best prices for those client databases, broker firm Centurion Market Makers (Centurion) has reported.
“Businesses with either remuneration model would be able to generate good prices right now, however with many in the industry seeing fee for service as the way forward commission models could erode the value of a business in the long term as it would become an old-world client offering,” Centurion director Wayne Marsh told InvestorDaily.
While many advisers were moving away from commissions to make remuneration more transparent, commissions were still generating guaranteed revenue for practices, which Marsh said could drive up the value of commission-based client books in the short term.
The theory as to why the purchase of such a client book at this point in time may be attractive was because no definitive legislation had yet ruled out commissions completely, buyers could be looking for an alternative income stream in the interim or might have a system that more simply transfers clients to a fee-based model down the track.
With commissions likely to be banned, Marsh said practice owners would no longer be able to rely on commissions as a certain income stream.
It would mean they would have to revise their offering to clients in order to ensure they don’t lose them, particularly because of the real possibility that services in some instances could become more costly for some clients.
The main point for practice owners to contemplate was whether they wanted to evolve with the times and move to a fee-for-service model or sell to potentially get a better price.
“The biggest mistake you can make as a practice owner is to do nothing,” Marsh said.
