Adviser book values boosted by sales drought

Mike Moore, who works with advisers in both the buying and selling of client books says the number of customer bases for sale is down about 30% to 40% from normal levels.

And he said the new regulatory regime, which came fully into force last July, has been the main reason for the shift in the market.

"Quite a number of people sold out in anticipation of compliance; rather than go through the process to become qualified they decided to sell earlier than that. There was quite a big clean-out last year; it was a busy year last year," he said.

"As a direct result [of the regulations] there are a significantly reduced number of advisers out there."

But for those who have waited the pendulum has now swung the other way, leaving the sellers in a much stronger position than a year ago, a change that Moore said is reflected in the prices they're getting.

"One result of the lessening of the number of adviser books in the market has been a substantial increase in their value," he said.

"Advisers who are selling are getting significantly better prices in the market today due to the scarcity value."

Moore said risk books are up by about 20% on average, with a range between three and five times renewal income, while investment books are up by 10%, at a range of between one and two-and-a-half times income.

Those who are selling aren't necessarily selling their entire books either, Moore said; some are simply reducing their client bases to more easily manageable numbers.

This provides opportunities for younger advisers looking to make a start in the industry; he said these new advisers sometimes get together in groups of two or three to make the purchases.

However, he said the number of new advisers coming into the industry is shrinking, due to the bar for entry being raised.

"In the old days you could decide to become a financial adviser on Monday, be in business on Tuesday and get paid on Thursday."

Comments from our readers

On 28 June 2012 at 3:56 pm Independent Observer said:

I'm not sure that many NZ advisers have "books" that are really worth anything.

From my observations, most advisers operate proprietorships rather than businesses, whereby their relationships are the only real asset.

Frankly I’d prefer to build a business in this climate, rather than pay money for a history of transactions - no matter how cheap it is.

On 28 June 2012 at 7:43 pm You must be joking. said:

What a load of look after myself rubbish from Mike Moore. Independent Observer has it absolutely correct. There are very few "businesses " in the industry, particularly the risk side.
Most businesses are driven by how can I churn this business to the company with the highest commission, the cheapest premium, the softest underwritng or who pays my aggregator the most money to get there business.
This philosophy is not how a "business" operates or thinks. Compliance has changed very little yet. By their own admission the FMA have neither the time nor resources to take any action.
No doubt there will be replies to this.
These will be advisers who are the commission trip soft underwriting people etc. There are some very good, some excellent businesses out there but they are few and far between.
There are product suppliers trying to help adviser/adviser groups grow into businesses.
A growing number of advisers are taking up this offer. Most are still on the lowest common denominator line as outlined above.Those who have a business will get excellent prices when they sell. The remainder, the majority are in for a disappointing retirement if they are counting on the sale of there mainly Mum and Dad market client bases-client bases not business's. Independent Observer. You are dead right.

On 29 June 2012 at 9:34 am LPL said:

The ownership of a book is not well understood by many; even those within the industry.
If a book produces income - it is worth something. The question is what. The worth is determined by the likelihood of the renewal continuing and the amount of work to keep that renewal and in the new environment, make it compliant.
The underlying suggestion is that it is difficult, but really it isn't. It comes down to process.
In some cases a particular adviser is important; but as most of us learn over time no-one is indispensable.
Building a book is honourable; but money for jam is better!

Adviser book values boosted by sales drought

Now could be a good time for advisers to sell their businesses due to a shortage of adviser books on the market pushing up prices by as much as 20%, a consultant says.

Thursday, June 28th 2012, 9:36AM 4 Comments

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