Financial planning practice principals looking to sell their businesses need to review their asking prices to take into account the climate of regulatory change currently impacting on the industry, according to a succession planning executive.
A few recent enquiries made by financial advisers wanting to sell their practices had begun with selling prices based on revenue multiples that were too high for the current regulatory environment, HLB Mann Judd corporate finance partner Simon James said.
The revision of business models to eliminate commission-based remuneration and switch to a fee-for-service revenue system was one element creating uncertainty in regard to risk that needed to be factored into current pricing regimes, James said.
In addition, he said valuations of financial planning practices based on multiples of revenue were not necessarily the most appropriate and using profit as the basis of the valuation calculation was more prudent.
He said selling prices that were set too high would make potential buyers extremely cautious as the escalation in price would translate into an immediate increase in the risk taken on by them.
