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Finding the value of a financial planning business

[Good Returns TV] Mike Moore talks to Philip Macalister about the market for financial planning businesses and what sort of prices they are selling for at the moment.

Wednesday, March 21st 2018, 2:41PM 1 Comment

A marketing specialist who helps financial advisers find buyers for their books of business is expecting a busy couple of years ahead.

Mike Moore, of Mike Moore Marketing, said the industry was going through a period of significant change. “I think most of the advisers have pretty much kept their head down and haven’t seen it as being imminent. All of a sudden now they’re confronted with the certainty, if you like, of substantial change, and for some of them it’s very threatening.”

Moore expects to see a surge in the number of businesses being bought and sold when new financial advice laws are put in place. But he said activity would then quieten down again.

“I think it will slow down to almost zero. Because what will be happening there is that the whole market’s sorting itself out. We’re already seeing some quite substantial mergers and acquisitions going on amongst groups, and that is probably a reflection of the future.

“Once you’re licensed and once you’ve got the responsibilities and the opportunities, you’re more likely to gather advisers under you and buy books from others to give them some land to milk on.”

The life insurance and investment side of financial advice represented 80% of the deals he encountered.

Younger advisers wanted to buy businesses but couldn’t afford to, he said.

“So first of all, for qualification, secondly, having enough money, and thirdly, having the confidence, means that people coming into the business now are very unlikely to buy anything in their early years. They have to gain a little bit of traction, and they usually do that by going to work for somebody else, either another adviser or a firm.”

Prices were solid, he said.  Life books would sell for between three times annual renewal income and five times. Investment books would go for two-and-a-half times income. “I can sell every single practice that I come across.”

Investment book prices were up 40% over the last two years, which Moore said was because people buying were not good prospectors. “They don’t go and knock on doors or do seminars or promote themselves, they are farming types and they want more land to work with.”
He said sales had to be a good fit. “There’s going to be a little frenzy of activity and unless people are very careful they can end up with some bad blood because they didn’t have a good match-up between the seller and the buyer and the type of clients involved.”

Tags: Mike Moore

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Comments from our readers

On 11 April 2018 at 1:14 pm MikeBeuvink said:
Hi Mike
Thanks for the feedback - very informative. Have any KiwiSaver books been sold and if so at what multiples?

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