When it comes to valuing advice practices, it seems the value has really plummeted since our first No More Practice program almost 12 years ago. What were 3x revenue business valuations are now looking at 1 to 1.5x revenue.
But the most interesting thing to come out of the Radar Results research that was released recently was the fact that the firms that still held their valuations, and were still attracting premium prices, were the ones that had approximately 100 clients who all paid fees (no commissions at all) of between $3,000 and $8,000 annually.
This got me to thinking. This really has to be the top 5% of Australian income earners. I spend around $3,000 with my adviser every year – and use integrated accounting services which I spend on top. I imagine those paying $8,000 a year have to be HNW individuals, because who else would be spending that much on financial advice?
Which leads to me to wonder, as advisers, how are you ever going to service mass Australia? People who desperately need advice. When an adviser needs these kind of numbers to grow a profitable practice that is worth something at the end of the day, the numbers don't add up.
It seems the drop in valuations due to the Royal Commission, changing commissions and an increase in education standards means inadvertently that the average Australian is further away from affording advice than ever before.
What to do about this dilemma? In the past, we all said that the banks could service people with less. They had the infrastructure and the scale. But that no longer is a solution – in fact, banks have realised that advice is a loss leader on their balance sheets and are quickly divesting.
So who is left to be a champion of Australians receiving advice? Perhaps younger advisers who are building businesses over the next 30 years, who can wait out the valuation dip and hope for better times down the track when they want to sell the businesses they worked so hard to build.
I don't think it’s fair to expect advisers to take all the risk associated, and not capitalise on the hard work they put in via a sale – anyone who has built a small business knows the blood sweat and tears attached, and the fact that a sale is representative of the sacrifices made along the way.
So we have this dilemma – that more experienced advisers will only be able to service a certain type of higher net worth client.
What this means for the Australian public who desperately need advice, whether they know it or not, is that access to high quality self-education is more important than ever. Because if people can’t afford an adviser they are going to have to go it alone. Their only hope is that they are with a super fund that can provide them with an advice service. Thankfully, many of the industry funds are focused on doing just that.
Otherwise they are completely alone. Not a great scenario by anybody’s standards.
Until next time,
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