Having made the first No More Practice show almost ten years ago, we have seen a lot when it comes to valuations of adviser firms. In fact, in our very first show, we followed two sellers who both got over 3.5x reoccurring revenue as a sale price – and the challenge was who to pick to buy it.
A far cry from today, where valuations seem to sit at around 2.5x, and many have predicted will go even lower to match accounting firms, which traditionally attracted about 1.4x at the top end.
Of course, this is very much due to a changing business model, and the ability (or lack-thereof) to make enough money to generate a profit after tax and expenses on a regular basis.
It seems to me that while the state of flux is still on for advisers, and the focus in on compliance and education standards, generating enough to survive is the most likely outcome. It is only when the dust has settled that some firms may be able to become entrepreneurial enough to start to think outside the box to get their valuations up again.
The day to day business of an adviser, of course, is to give advice. The compliance levels around this make that a lengthy and costly process. This is the heart of the business, and its value.
However, there may be room for advisers to think differently about non-core activities that could also generate profit. Could they be events/courses/classes that are charged for? Could they create online learning for clients that is additional? I have even seen some advisers charge for their communications model – podcasts, dedicated newsletters and training for family members.
The only way to get valuations up for a business, and not just be working for an income, is to generate more cash-flow and profit. If advice itself is costly and it is harder than ever to do that, then ancillary services that are profitable may be the answer.
Of course to have those services, you need to build them. Which is why the hustle for time and ideas has never been more important. This may be easier for some than others. Investing time into product development and sales is never easy. And at the moment it may seem like a pipe dream. But I have seen advisers be incredibly entrepreneurial.
I recently re-watched our Transformation Series and was reminded how much advisers can change their business by changing their thinking. If you want to be inspired about increasing your value, I would suggest watching it. While its predates the Royal Commission, the theory behind growing value remains as true today as it was back then.
So are valuations down for good? I would suggest for those with the energy, time and creative thinking, the answer is no. And a thriving advice community is good for us all.
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