Adviser book values boosted by sales drought

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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.

by Niko Kloeten

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."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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