There are a few important trends taking place in the practice acquisition space at the moment.
The first noticeable one is that there is a bit of an arms race going on in the acquisition of planning practices, with institutions actively looking to boost their distribution channels.
But arms races are difficult things, because if you don’t participate, you lose. And if you do participate, you don’t necessarily win. Because institutions are quite serious about acquisitions, this is making it a bit difficult for some of the independent firms to compete because of some of the prices the institutions are paying for practices.
For businesses like ours, that actually own large planning firms, retaining practices through this period is quite a challenge because you’ve also got a lot of institutional competition for these acquisitions.
Another trend in the practice acquisition space is that the availability of debt funding has shrunk in some ways. There is less availability to funding than there was previously. This means that the institutions and wealth management companies are able to come in and offer an alternative to bank funding in terms of doing deals to acquire financial planning firms. So, we’re seeing quite a bit of activity there leading up to FoFA. I expect to see a lot more between now and when FoFA kicks in. So there is no doubt that things have picked up in the acquisition space.
It’s an unusual situation we find ourselves in – which is ironic because in some ways, reform has brought this on. There are a number of advisers who have decided to exit the industry rather than go through another round of reform. I’ve heard some commentators say up to 30 per cent will leave, but I don’t think it’s going to be quite that high. Planners are resilient and they’ve been through change before. But this time it’s different because they’re older, with many owners approaching retirement. Some of these planners are questioning whether they want to go through more change.
These trends are forcing just about every player to actually come up with a succession planning solution. The ultimate question for financial planners to answer is “What’s the exit strategy for the business?” Increasingly, the question is now being asked of the institutions (particularly the licensees/dealer groups) in how they’re going to offer practices a succession planning solution.
Those who don’t have a succession planning solution will lose the arms race. Those who do will survive it.
